The commodities market in 2021 has undergone significant changes, impacted by consumer demand, inflation and domestic factors. Overall, commodities performance has been very strong throughout 2021 amid continued pressure in physical commodity markets as reopening demand outstripped supply and depressed inventories. This article presents the best performing commodities of 2021 and the reasons for their success.
Benchmark Coffee C is the global benchmark for Arabica coffee, currently valued at $ 2.42 per pound. This figure remains close to its highest levels since October 2011, the rise in prices being caused by several factors. Since the start of 2021, coffee’s performance has exploded by 89%, due to several environmental events in Brazil, which accounts for 35% of global coffee exports. Frost and drought in the South American nation destroyed crops. If frost causes maximum damage, potential two-thirds of the trees can be damaged. Since coffee takes around 5 years to grow, this could severely limit supply, pushing up prices.
Not only that, but excessive rains in Colombia, another major coffee exporter, and a shortage of shipping containers in Vietnam have also limited supplies. The USDA (United States Department of Agriculture) estimated in its latest report that global coffee production and consumption will increase, due to higher shipping costs, soaring costs. persistent fertilizer and labor shortages. As a result, the Benchmark Coffee C could break through the $ 3 and even $ 4 barrier, if such factors persist in the long term, along with the spread of Omicron.
On the supply side, the amount of gas produced, the level of gas stored and the volume of gas imports and exports affect natural gas. On the demand side, climatic variations, economic growth and the availability and prices of alternative fuels have an impact on natural gas. Since 2008, natural gas prices have been falling but have seen significant changes since mid-2020, especially last year.
Natural gas prices have doubled since last year, currently standing at $ 3.8 per million British thermal units (MMBtu), an unprecedented level since mid-July and previously in December 2018. This is due to several factors. Demand is rebounding as consumers resume their pre-pandemic activities. At the same time, producers, who suffered from the unprecedented slowdowns of 2020, were reluctant to increase production quickly.
Much of the future expectations depend on the winter weather. A colder winter means demand for heating will increase, which should push up natural gas prices. JP Morgan has raised its average price forecast for 2022 from 1.70 MMBtu to 4.81 MMBtu.
Oil (Brent & WTI)
Oil has always been an attractive trading option because it is quite volatile, useful in balancing price movements, and easy to trade. Since the birth of the pandemic at the end of 2020, demand for oil has been severely hampered due to travel restrictions and blockages. The dispute between Saudi Arabia and Russia flooded the oil market, at one point causing future contract prices to drop to below $ 40 a barrel. But, things were quite different for oil in 2021.
Oil has had an impressive year, with US benchmark oil WTI recording a 40% better performance this year, and London-based Brent oil recording an impressive 38.6% increase in value. Crude oil prices rose significantly in the third quarter of this year, driven by several factors. The increase in demand in Europe and China is the result of the removal of the lockdown measures.
Another factor would be supply problems related to weather conditions. U.S. production was affected by Hurricane Ida as the Organization of Petroleum Countries (OPEC) and its allies produced 1 million barrels / day below their quota, due to maintenance and supply disruptions . A third factor would be the decline in oil stocks, which had been declining by more than 1% per month since August of last year. However, the Omicron spread has heightened investor concerns, pushing oil down 10% in the largest one-day drop since April 2021 amid fears stemming from the potential renewal of global travel restrictions. With rising energy prices and a potentially colder-than-expected winter season, oil prices could soar again.
US cotton futures have seen an impressive 34.6% jump in performance in 2021. In fact, cotton futures have been on the rise since the start of the year, but have seen their best quarters in the third quarter against a backdrop of tight supply caused by a drought in the United States, which limited production before the holiday shopping season. The higher prices can also be attributed to bad weather, which has hurt crops around the world with a drop in demand for fiber from the United States, the main exporter. The last time cotton prices were this high was in July 2011.
The rise in cotton prices has caused retailers and manufacturers to raise the cost of raw materials, and in turn, the average price of a cotton t-shirt for a consumer has increased by around $ 1.5. at $ 2 on average. However, the United States reportedly intends to increase cotton exports to Bangladesh, which is the world’s largest cotton importer behind Pakistan, and such a move may regulate cotton prices.
Last but not least on our list is American wheat, which has climbed almost 25% in value. Wheat has reached 9-year highs due to deteriorating winter crop conditions in the United States, raising concerns about global supply amid strong demand. Wheat extended its rally after the USDA lowered its supply forecast for the United States and globally for the year 2021/2022. The department predicts that total U.S. wheat production will reach 1.697 billion bushels, 49 bushels lower than previous estimates. This has pushed wheat prices to record highs, with investors expecting prices to continue rising if supply remains tight amid the Omicron spread.
Written by the analyst of Goldenbrokers.com