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Thursday, November 7, 2024

Commodities Rollercoaster: Who’s Riding High and Who’s Hitting the Brakes in 2023?

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A farmer collecting grain from a combine harvester during the wheat harvest on a farm near Benfleet, UK, on Monday, Aug. 12, 2024. 

Bloomberg | Bloomberg | Getty Images

The global commodities market has seen a wild ride this year, with prices remaining largely elevated. **Orange juice** and **cocoa** futures surged to record highs in the first half of the year, while **crude oil** prices fluctuated with headlines from the Middle East. **Gold prices** continue to rise, but that of base metals like iron ore slipped considerably. “Thus far, commodity markets have been sentiment-driven and fickle — in continuous search of the smallest inkling of hope to rise to new highs, only to collapse back down with the slightest hint of possible disappointment,” said Sabrin Chowdhury, director and head of commodities analysis at BMI.

The S&P GSCI, a benchmark for the overall commodity market’s performance, rose as much as 12% in April from the start of the year, before tapering off to a 2.18% climb year-to-date.

According to data pulled from FactSet, the commodities making the most gains year-to-date are a select basket of soft commodities that includes cocoa, eggs, orange juice, rubber and coffee.

Analysts told CNBC these commodities saw strong gains as a result of adverse weather in their main production regions.

Biggest winners

Cocoa

Cocoa leads the charge as prices jumped 66% so far this year, with futures soaring to an all-time high of $11,722 per metric ton in April amid a bean shortage due to supply disruptions from heavy rains and disease in key producers Ivory Coast and Ghana.

Attracted by the profit-making opportunities, hedge funds piled into the market which made price movements even more volatile, said Darren Stetzel, senior vice president of soft commodities for Asia at brokerage StoneX. 

While prices have tapered from the record highs, cocoa futures still remain above typical levels, with the September contract last trading at $9,150 per metric ton on the U.S. Intercontinental Exchange.

Stetzel said the cocoa market would stabilize as weather conditions in West Africa improve heading into 2025, though he noted prices would be slow to return to the levels before this year’s spike.

Eggs

A recent resurgence of avian influenza in poultry facilities across the U.S., Japan and other nations has caused prices of eggs to jump over 62% per dozen since the start of the year, according to FactSet data. The spot price of a dozen large white eggs currently stand at $3.57, according to FactSet citing the U.S. Department of Agriculture and Commodity Research Bureau.

About 18.5 million egg-laying hens in the U.S. have been affected by the bird flu so far this year. On the demand front, consumers have also been leaning more heavily on eggs as a more affordable source of protein, said Karyn Rispoli, managing editor at market intelligence platform Expana.

Higher wholesale egg prices are expected as the fall and holiday seasons approach, especially if HPAI infections continue, said Wells Fargo’s Agri-Food Institute sector manager Tim Luginsland.

Orange juice

Orange juice futures surged to a record in May and is currently hovering around historically high levels of $4.49 per pound on ICE. Production declines in Florida — the main producer of orange juice in the U.S. — on top of climate-fueled adverse weather in key orange producing areas of Brazil have pushed the industry into crisis mode.

Orange juice is offered for sale at a grocery store on February 13, 2024 in Chicago, Illinois. 

Scott Olson | Getty Images News | Getty Images

And that’s unlikely to change anytime soon. Global orange juice production is set to decline for the fifth season due to continued production declines in Brazil, which accounts for 70% of global production.

“Given the projected orange crop yields for the upcoming season, expectations are that orange juice prices will remain elevated for at least the next 12 months,” said David Branch, Wells Fargo’s Agri-Food Institute sector manager.

Rubber

Prices of rubber have surged nearly 30% since the start of the year as production declines in the world’s largest natural rubber producers, Thailand and Indonesia, due to weather-related issues such as limited rainfall

The September contract for 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 traded on ICE have jumped 25% year-to-date to $2.45 per pound due to adverse weather conditions in coffee growing regions in southeast Brazil, said BMI’s Chowdhury.

El Niño-induced production challenges in Southeast Asia have caused crop declines in key producing regions Vietnam and Indonesia. El Niño is a weather phenomenon which brings about warmer temperatures and more extreme weather conditions, typically lasting between nine to 12 months.

Biggest losers

Notable mentions

Key Takeaways

  • Commodities market remains volatile: The global commodities market has been turbulent this year, with some commodities soaring to record highs while others slumped significantly.
  • Weather woes drive price spikes: Adverse weather conditions in key production regions have led to supply disruptions for several commodities, notably cocoa, eggs, orange juice, rubber, and coffee.
  • China’s economic slowdown impacts iron ore: Iron ore prices have been significantly impacted by weakness in China’s property sector, leading to decreased demand.
  • Gold shines as a safe haven: Gold remains a popular safe-haven asset amid global economic uncertainty and interest rate cut expectations, pushing prices to record highs.
  • La Niña on the horizon: The anticipated transition from El Niño to La Niña by the end of the year could have a significant impact on the global agricultural market, potentially leading to a shift in weather patterns and commodity prices in 2025.

Article Reference

Sarah Thompson
Sarah Thompson
Sarah Thompson is a seasoned journalist with over a decade of experience in breaking news and current affairs.

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