Photo credit: www.cnbc.com
A farmer collects grain from a combine harvester during the wheat harvest on a farm near Benfleet, UK, on Monday, Aug. 12, 2024.
The global commodities market has experienced significant fluctuations this year, with prices largely remaining elevated.
In the first half of the year, orange juice and cocoa futures reached unprecedented heights, while crude oil prices exhibited volatility influenced by developments in the Middle East. Although gold prices have shown an upward trend, base metals like iron ore faced notable declines.
Sabrin Chowdhury, director and head of commodities analysis at BMI, commented, “The commodity markets have been characterized by sentiment-driven trading, often swayed by the slightest indicators of potential improvement or disappointment.”
The S&P GSCI, a key index tracking overall commodity performance, increased by as much as 12% in April from the beginning of the year but has since moderated to a year-to-date rise of 2.18%.
Data from FactSet reveals that a select group of soft commodities, including cocoa, eggs, orange juice, rubber, and coffee, have led the gains this year.
Experts have attributed the strong performance of these commodities to adverse weather affecting their primary production regions.
Key Gainers
Cocoa
Cocoa has emerged as the standout performer, with prices escalating by 66% in 2024, peaking at $11,722 per metric ton in April due to a shortage triggered by supply disruptions from severe weather and disease affecting key producers like Ivory Coast and Ghana.
The allure of high profits drew significant hedge fund investments into the market, amplifying price volatility, stated Darren Stetzel, senior vice president of soft commodities for Asia at StoneX. Although prices have softened since their peak, cocoa futures continue to trade above typical levels, with the September contract recently at $9,150 per metric ton on the U.S. Intercontinental Exchange.
Stetzel anticipates a stabilization in the cocoa market as weather conditions improve in West Africa moving into 2025, but noted that a return to pre-surge price levels will likely be gradual.
Eggs
A resurgence of avian influenza across poultry facilities in the U.S., Japan, and other countries has led egg prices to rise by over 62% per dozen since the beginning of the year. Currently, the price for a dozen large white eggs stands at $3.57, as reported by FactSet citing the U.S. Department of Agriculture.
This year, approximately 18.5 million egg-laying hens in the U.S. have been impacted by the flu. Additionally, consumer preferences have shifted towards eggs as an affordable protein source, as noted by Karyn Rispoli, managing editor at market intelligence platform Expana.
Wholesale prices for eggs are expected to rise as the fall and holiday seasons approach, especially if HPAI infections persist, according to Tim Luginsland, sector manager at Wells Fargo’s Agri-Food Institute.
Orange Juice
Futures for orange juice soared to a record in May, currently priced around $4.49 per pound on ICE. Contributing factors to this spike include production declines in Florida, the main U.S. producer, coupled with climate-related adverse weather in Brazil, which is also a major orange-producing country.
For the fifth consecutive season, global orange juice production is set to decline due to ongoing production challenges in Brazil, which is responsible for 70% of the world’s supply.
“Current projections suggest that orange juice prices will stay high for at least the next year,” stated David Branch, sector manager at Wells Fargo’s Agri-Food Institute.
Rubber
Rubber prices have risen nearly 30% since the year began, spurred by production shortfalls in Thailand and Indonesia, the largest natural rubber producers, resulting from weather-related issues like inadequate rainfall.
The benchmark Ribbed Smoke Sheet graded (RSS3) rubber futures are currently trading at 337 yen ($2.29) per kg on the Osaka Stock Exchange.
Coffee
Coffee futures on ICE have surged 25% year-to-date to $2.45 per pound, largely due to unfavorable weather in Brazil’s coffee-growing regions. El Niño-related challenges in Southeast Asia have also affected crops in key producing nations like Vietnam and Indonesia. El Niño typically leads to warmer temperatures and more extreme weather conditions, lasting about nine to 12 months.
Major Declines
Iron Ore
Iron ore has seen the most significant price drop as China’s property market struggles, leading to reduced demand. Diminished margins at steel mills, which heavily influence iron ore pricing, have also contributed to this decline, according to Vivek Dhar, director of mining and energy commodities research at Commonwealth Bank of Australia.
The benchmark 62%-grade iron ore last traded at $98.10 per ton on the New York Mercantile Exchange for the contract expiring August 30.
Grains
Major grains such as wheat, corn, and soybeans have also experienced notable price drops, primarily due to a bumper crop year across the Northern Hemisphere.
“Consequent large crop yields have resulted in a substantial surplus in the global grain inventory,” Luginsland from Wells Fargo remarked, noting that increased availability of corn and soybeans on the export market is driving prices down.
So far this year, wheat and corn on the Chicago Board of Trade have decreased by almost 15%, while soybean prices have fallen close to 25%.
Highlights
Gold
Gold prices have surged to record levels this year, driven by anticipated U.S. interest rate cuts and the commodity’s status as a safe-haven asset. Recent futures reached an all-time peak of $2,549.9 per ounce.
Despite the year’s volatility, analysts from BMI predict that the global commodities market will maintain elevated levels. Chowdhury forecasts that gold prices will remain supported by a weak U.S. dollar, particularly as the Federal Reserve is expected to lower interest rates later this year.
However, sustained low demand from China is likely to cap growth in most commodities, with industrial metals expected to face further declines. Furthermore, a transition from El Niño to La Niña could also significantly impact global agricultural markets as it typically leads to cooling effects on temperatures, occurring every three to five years, according to Stetzel from StoneX.
Source
www.cnbc.com