12/29/2023

Commodity dynamics in 2023: results

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Key points:

  • Commodity prices fell overall in 2023, but cocoa and iron ore rose.
  • Agricultural product prices are expected to surpass energy and industrial metals prices in 2024.
  • Precious metals prices rose due to lower US dollar and Treasury yields.

In 2023, while cocoa and iron ore prices soared, natural gas and coal prices plummeted. Agricultural products are expected to buck the trend in the coming year, outperforming energy and industrial metals prices.

Constrained supply and dry weather conditions are behind the anticipated surge in agricultural prices. Cocoa prices shot up 72% to a multi-year high, driven by limited production in key producing regions, namely West Africa. Iron ore prices also surged, with China’s efforts to revitalize its ailing property sector providing a significant boost.

Analysts predict that the overall decline in commodity prices will persist into 2024, as economic growth in the United States is projected to slow down, and economies in Europe and China are expected to remain sluggish at best.

Which assets showed growth?

Cocoa prices in New York reached an all-time high this year, and the upward trajectory is expected to continue into 2024, hampered by a disappointing harvest in the critical producing region of West Africa.

Capital Economics noted in a report that limited supply combined with robust seasonal demand is likely to maintain cocoa prices elevated until 2024 when new supplies arrive in October, marking the start of the next growing season.

On the iron ore front, China’s initiatives to revitalize its struggling property sector and bolster a patchy economic recovery from the pandemic have driven prices higher, with further gains anticipated in early 2024.

The year of the food crisis

El Niño-induced hot and dry weather has inflicted damage on global rice, coffee, and sugar production, propping up prices. Supply disruptions in the rice market have spurred India, the world’s largest supplier, to restrict exports, propelling prices of the world’s most widely consumed food staple to 15-year highs and amplifying food inflation pressures.

The decline in supplies also instigated a surge in coffee prices: in 2023, robusta coffee beans gained nearly 60%.

India’s sugar production is poised to trail consumption for the first time in seven years, and dwindling plantings could compel the world’s second-largest producer to transition into a net importer.

Wheat, corn, and soybeans are projected to experience losses in 2023, yet prices remain susceptible to unfavorable weather conditions, export restrictions, and stricter biofuel regulations.

Palm oil production is expected to decline next year due to a drought, providing support for prices that have already plunged by over 10% in 2023.

Energy supply growth

A surge in supplies of oil, gas, and coal could exert downward pressure on prices for a second consecutive year in 2024.

Brent and West Texas Intermediate crude futures have tumbled by approximately 7% this year, declining for the first time in three years, despite skyrocketing global oil demand and deeper supply cuts implemented by OPEC+.

Non-OPEC+ production growth is projected to dominate the energy landscape in 2024, with S&P Global Commodity Insights foreseeing record-breaking oil and liquids production in the United States, Brazil, and Canada.

Precious metals are at a good time

A weaker U.S. dollar and declining Treasury yields, fueled by increasing expectations that the Federal Reserve will halt its monetary tightening cycle, have bolstered gold’s performance, pushing it closer to its best year in three years. Prices have soared to record highs above $2,100 in recent weeks.

Analysts anticipate that gold and silver prices will continue to rise by mid-2024, driven by robust demand for these precious metals as a means of safeguarding investments against potential losses in equity and real estate markets in developed economies.

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