2018: what happened to Commodity prices?

Staff Commodities Leave a Comment

2018 was a difficult year for agricultural commodities, with only four commodities (Cocoa, Wheat, Oats and Corn) showing price increases. The following table shows the annual performances (calculated from the first business day to the last business day of the year) of the commodity future prices quoted on the main stock exchanges. Lumber, Arabica coffee, and cane sugar performed negatively decreasing by more than 20%.

The main factors which influenced prices in 2018 were:
– meteorological conditions, which directly impacted the quantities produced;
– and the commercial war started by the USA, which introduced import duties.

Cocoa futures rose 24.8%, which was the greatest increase of 2018. The growth can be attributed to the adverse weather conditions in Ivory Coast, the most important world producer.

Wheat recorded the greatest price increase (+16%) since 2012, after production from main exporting countries (Russia, EU, Ukraine), affected by drought, declined. The lack of production in Europe made the European Union a net importer of cereals for the first time in over a decade. China’s response to the new US duties also affected wheat prices. China adopted a new 25% duty on American wheat imports which caused a rise in Russian demand for wheat.

Also, the Corn price increased this year (6.2%). The USA is the world’s largest producer with Mexico as its first destination market. In the first part of the year prices were influenced by the commercial war, but in the second half prices fell when USA and Mexico reached a free trade agreement about agricultural products.

The worst performance in 2018 was the Lumber future price, which lost more than 26%. Lumber had a volatile year. Prices reached a record level in May and then hit a 28 month low. The price at the end of October was $304, which was less than 50% of the value from the first half of the year. The cause of the price collapse was the imposition of a 20% American duty on Canadian imports.

The second worst performance of 2018 is Arabica Coffee, which decreased by 21.8%. The harvest was good and this pushed the prices down. In addition, Brazil, the main producer of coffee, in 2018 saw its currency (Real) devalue by 19% against the US dollar. The Real negatively affected the quoted Coffee prices in US dollars because the Brazilian producers sold at lower conditions which were affordable in local currency.

Cane Sugar fell 21.5% and White Sugar 16.6%. Brazil, again, was the main reason for this fall. The continuous devaluation of the currency and the large crops brought down prices. Brazil is a main producer of sugar, so the devaluation had a great impact on sugar prices.

Soy lost 7.2%. The main producer is the United States and the main buyer is China. The duties imposed by China led to a decrease in Chinese imports of 49%. The Trade War and the strengthening of the Dollar, which makes US goods relatively more expensive abroad, had a negative impact on the entire sector. Soy commodities such as soy flour and soybean oil dropped 2.5% and 17%, respectively.

Palm oil production is subject to major tensions. The world’s biggest growers say they are stepping up their efforts to produce in a more sustainable way. On the other hand, consumers are not willing to pay more to go green.

Orange juice also declined by -7.8% and there is a shift in export flows. The main producers are the USA and Brazil. The EU, Canada and China imposed taxes on orange juice imports and this will lead to a decline in US exports and more supply from Brazil.

Regarding ENERGY COMMODITIES, during 2018 there was a generally bearish trend.

Oil (Brent) had a negative performance of 19.7%. Despite the oil price spending a good part of the year on the upside (it reached the highest value since the end of 2014, $ 86.74 a barrel), Brent lost 40% from its annual highest value since October. The collapse began when the United States granted generous exemptions from the sanctions imposed on Iran. Another reason for the collapse was the realization of the economic consequences resulting from the trade war. Investors began to worry about a slowdown of world economies that would have direct consequences on oil demand.

Ethanol loses 7%. The increase of production, the rise of corn-based biofuel supply, and Chinese tariffs influenced prices.


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