Dollar Records Historic Decline, Commodity Markets Under Risk Pressure

The end of a very volatile month is approaching. Along with that, the past and this week have been shortened due to holidays and festivities. Generally, there are not many new developments, but it is not that we advocate for them; there are already quite a few existing factors affecting commodity markets. The order of Trump and tariffs, the order of wars and geopolitics, the order of negative and pessimistic expectations for the near future, all wrapped up in the loss of purchasing power of FIAT currencies. Therefore, it is not surprising to see the movement in the prices of gold, silver, and Bitcoin, new safe havens for currencies. Overall, the market focus is on weather forecasts, trade negotiations between the US and China, information regarding potential negotiations between Russia and Ukraine, and the direction of the US dollar ahead of May.

The US dollar index has fallen by almost nine percent since the beginning of the year. This is its worst start to the year since 1973, when currencies were detached from the gold standard. That was the last major monetary reset; are we waiting for a new one at the end of this year?

The Chinese economy is based on exports, while the US economy is based on consumers. China is trying to shift its economy to one that is more consumer-based, but it is struggling now as consumer sentiment is near record low levels, and its own debt levels are rapidly escalating as Trump’s tariffs dramatically reduce exports, requiring more government funding for stimulus projects.

Chinese fiscal revenue has fallen, while fiscal expenditures have increased, leading to a rise in the fiscal deficit. All this at a time when China continues to struggle in this trade war with increasing levels of fiscal stimulus. It ultimately comes down to who loses the most political capital first, China or the US? There is no pressure from upcoming elections. Xi is president for as long as he wants, and Trump is in his last term. As such, Xi must be concerned about losing the trust of his people, and Trump must maintain the support of his party.

Trump Eases Rhetoric

For his part, Trump must start producing solid evidence that his strategy works. Xi must protect his economy from collapse. The current stalemate is unsustainable. Both need an “exit” that allows them to appear strong in front of their voters. It seems that this “exit” is slowly being found through informal talks taking place behind the scenes. This will not lead to a trade agreement, but it could ease tensions enough to allow the start of those official talks.

Oil prices are more or less unchanged on a weekly basis, below the level of $67/bbl. The main factor is the uncertainty surrounding global trade in general. Although it remains unclear whether official trade negotiations between the US and China have begun, Trump eased his rhetoric last week, and Beijing exempted some US imports from its 125 percent tariffs. However, the potential rise in oil prices is limited by concerns over oversupply. Progress in US-Iran negotiations regarding Tehran’s nuclear program has increased the possibility of a rise in Iranian oil exports if sanctions are lifted. Additionally, the potential for OPEC+ to increase production for the second consecutive month has further contributed to the bearish sentiment.

Meanwhile, the Trump administration has called on Russia and Ukraine to advance peace negotiations following a one-on-one meeting between Trump and Zelensky. Is peace on the horizon? If so, under what (commercial) conditions? The European Union is gradually reducing its energy dependence on Russia, but it still has to work to completely wean itself off fossil fuels. We have reduced imports of Russian gas from 45 percent to 18 percent. We have gone from one barrel of oil for every five purchased to one barrel of oil for every fifty purchased; thus, ten times less. And we no longer import coal from Russia. This was highlighted by European Commission President Ursula von der Leyen. The question is only what price (economically and financially) we have paid for this achievement.

European Gas Storage Filling Up

The futures prices of European natural gas TTF have stabilized below the level of 33 €/MWh, close to the lowest level in the last nine months, as supply remained stable and warm weather reduced demand. Temperatures across Northwestern Europe are expected to remain above average until next week. Additionally, supply is expected to remain stable. European gas storage is slowly filling up after winter, currently at 38 percent capacity (significantly lower than this time last year). The US has already become the largest LNG supplier to the EU and is seen as a clear alternative to Russian gas. Unlike Russian coal, gas is not subject to an import ban. The EU has already banned 90 percent of Russian oil imports, and total gas deliveries from Russia to the EU are currently at their lowest since 2022.

In the last ten days, there have been no significant movements in the futures markets for grains, nor in the physical commodity market. The general sentiment is bearish. The main driver is the US dollar. Weather remains favorable for almost all crops globally. Weather in the US looks promising as we enter deeper into key weeks for planting. These better weather forecasts weigh on the prices of agri commodities in the markets. Simplified logic suggests that better weather means higher yields and consequently lower prices.

Top 10 Agricultural Products

It is interesting to look at the ‘top 10’ agricultural commodities by global production volume. They drive global food security, industrial raw materials, and international trade flows. Sugarcane (1.9 billion tons) is the most produced agricultural product in the world, driven by the boom in the sugar and biofuel industries. The second largest is corn (1.2 billion tons), which drives both food supply for humans and livestock feed markets, crucial for global food security. Wheat (800 million tons), rice (550 million tons), potatoes (370 million tons), and tomatoes (190 million tons) remain essential staples for billions of people worldwide. Milk (620 million tons) is the only animal product in the top 10, highlighting the importance of dairy nutrition on a global scale. Oil palm fruit (420 million tons) and soybeans (370 million tons) dominate the global markets for vegetable oils and proteins, while barley (150 million tons) maintains its vital role in beer production and animal feed.

Copper futures prices are at a level of 4.82, but unchanged on a weekly basis, after the largest consumer, China, expressed confidence that it would meet its annual growth target of around five percent, but refrained from introducing immediate stimulus measures. Instead, Chinese authorities have promised to introduce new growth policies in the second quarter, signaling that they prefer to first assess the timing and severity of trade shocks before committing to aggressive action. Uncertainty remains about whether copper could be a target of future US trade barriers, adding further volatility to the market.