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Commodity prices fell in October. Energy prices decreased by 1.8 percent, led by coal (-12.5 percent) and oil (-3.4 percent). During the same period, agricultural product prices fell by 1.5 percent. Food prices dropped by 1.7 percent, with edible oils (-4.9 percent) and grains (-1.8 percent) leading the decline, while beverages and raw materials gradually decreased by 0.8 percent and 1.1 percent, respectively.
Prices of artificial fertilizers increased by 2.7 percent during this period. Metal prices fell by 2.7 percent in October, led by nickel (-6.9 percent), lead (-5.3 percent), and copper and tin (-4.1 percent). Precious metals decreased by 0.5 percent.
The market will monitor any prolonged decline of the US dollar this week, which fell by two percent on Friday compared to its highest value on Wednesday, marking the lowest level in the last seven weeks. In a climate of greater risk appetite, the dollar tends to lose its appeal as a safe haven. Movements in the dollar can significantly impact commodity price movements.
After aggressive interest rate hikes over the past year and a half, the US Federal Reserve (FED), along with the British central bank, left interest rates unchanged last week. Given that inflation in Western countries is gradually easing, the prevailing thesis in the markets is that the cycle of interest rate hikes has ended.
Interestingly, the market believes that it will not be the FED but the ECB that will be the first to lower the cost of money in 2024, discounting interest rates by 25 basis points as early as April.
Concurrently, concerns about future economic growth are rising. A report released on Friday showed that employment in the US slowed in October, while wages increased less than in September, indicating weakening demand.
The situation is no better in the EU. Although the inflation rate is declining, currently at its lowest in the last two years, the bad news is that the economy contracted in the third quarter. To avoid the impression that only the West is struggling, the Chinese PMI for October stands at 49.5 (while the market expected a figure above 50), down from 50.2 in September.
All of this casts doubt on China’s economic recovery, as a figure below 50 indicates economic contraction, while a figure above 50 indicates growth. According to the latest UN report on trade and development, the global economy is increasingly characterized by low investment and low growth, financial speculation, declining real incomes, rising social inequality, and the increasing dominance of large multinational corporations.
The Hamas-Israel Conflict Has Not Yet Disrupted Oil Supply
On global markets, oil prices fell again last week for the second consecutive week, as supply from the Middle East remained unaffected, and demand could decline due to the weakness of the largest world economies. On the London market, the price of a barrel fell by 6.2 percent last week (to below $85/bbl), but at the beginning of the new week, the price rose and is trading above $86/bbl.
On the US market, last week, the price of oil decreased by 5.9 percent (to $80.5/bbl), but at the beginning of the new week, the price rose and is currently trading slightly below $82/bbl. The price increase at the beginning of this week is due to Saudi Arabia and Russia confirming that they will continue voluntary oil production cuts until the end of the year.
Although intensified, the conflict between the Palestinian organization Hamas and Israel has not yet disrupted oil supply from the Middle East. If the conflict spreads in the region, oil supply could be disrupted, but that is not the case for now.
In addition to the war, the focus of the market last week was on the monetary policy of major central banks. Given that there are no new interest rate hikes and additional macroeconomic indicators suggest that growth in the largest world economies is slowing, consequently, oil prices fell amid fears of declining demand.
At the beginning of the new week, European natural gas futures prices fell by more than four percent to below €46/MWh, following a 4.9 percent drop last week, due to unusually warm weather and nearly full gas storage capacity. Additionally, concerns about gas supply disruptions due to the Israel-Hamas conflict have diminished.
Furthermore, Western Europe is expected to experience milder weather until mid-November, reducing heating demand as higher temperatures are anticipated in many parts of the continent.
Regarding supply, natural gas deliveries from Israel to Egypt have continued. Despite this, Egyptian gas imports remain relatively low at 250 million cubic feet per day, compared to the usual 800 million. Israel has temporarily closed its Tamar offshore gas field due to the conflict in Gaza.
Hedge Funds Bet on Lower Prices for Agricultural Commodities
This week, the focus of the agricultural market will primarily be on the WASDE report on Thursday, amid concerns that it could be the last for some time due to fears of a government shutdown. Another key market influence will come from weather conditions, particularly in Brazil, where corn and soybean plantings are increasingly threatened, and in Western Europe, where persistent rain is not only halting planting but also the application of other inputs. Currently, in grains, the main differentiator will be the war in the Middle East, while in oilseeds, the main market mover will be weather and logistics in South America.
Hedge funds and other speculators have the lowest net investments in agricultural futures in the last three years. This means that funds are betting on lower prices in markets such as wheat, corn, canola, soybeans, and pigs. We will see if the new macro sentiment and a weaker US dollar will encourage hedge funds to reinvest in these markets and push prices upward.
The global FAO food price index fell by 0.7 points in October, thanks to the trend of falling prices in the sub-indices of grains, vegetables, and sugar, the FAO reported on Friday. The FAO Food Price Index (FFPI) averaged 120.6 points in October, a decrease of 0.5 percent compared to September and 10.9 percent lower than the previous year. The grain price index in October decreased slightly by 1 percent compared to September and by 17.9 percent year-on-year.
Copper futures prices rose above the threshold of $3.65/lbs, due to forecasts of strong demand and concerns about low supply. Beijing stated that it would expand its budget for this year to borrow an additional trillion CNY for investments in production, increasing purchasing activity for industrial inputs and alleviating concerns about low demand due to the debt-laden housing construction sector.
Meanwhile, new data showed that inventories on the Shanghai Futures Exchange and LME fell by nearly 40 percent in the week ending October 27 to 36,400 tons. Operational issues in South American mines have also pressured short-term supply, forcing Southern Copper, Teck, and Anglo American to lower their copper production forecasts for the current year.
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