Commodities and Price Action

The Commodity´s Market continues to pose a huge threat to the short & medium-term inflation and the world´s economy outlook as several potential risk events are on the horizon. Currently there are many pressures pointing towards higher cost of living and reduced standard of living.

In this article:

1. Energy – yet to see firm impacts from the Middle East

2. Metals – stock of Gold has Increased in recent months

3. Agriculture – Orange Juice price hits is all time high in October

(Orange harvest in São Paulo and Minas Gerais)

Energy – yet to see firm impacts from the Middle East

Within this market, several drastic implications can arise from it and the causes are many, both short and medium term. What we currently have is:

• Winter season fast approaching with many countries’ energies reserve not filled to sufficient/appropriate level;

• Already high energy price; and

Major Central Banks pausing Interest rate hikes

The above statements are but few bricks in the cog of energy market. Although OPEC oil production is stable due its African members covering for the diminishing supply elsewhere and we clearly see efforts worldwide for countries to fill up their reserves, lower crude oil inventory in the US and Europe continues to be supportive of crude oil prices.

We are yet to see the complication in Middle East full impact on the energy market.

Central banks are attempting to show confidence but the ECB recently said that they shall make use of other tools to aid tackling upward pressure in prices and has decided not to increase their interest rate further. We have seen that recently the European countries have increased they purchase of Russian gas and that they are now stuck with it until the end of the following year as Ukraine is unable to terminate the transit of Russian gas through its territory. As ECB already expressed that Inflation has been too high for long whilst interest rates are high, a further 0.5% - 1% increase of unexpected inflation due to geopolitical and/or Climate related causes, can potentially make or result in a delay to inflation returning back to 2%. The concern here is that, should firm's anchored price expectations cease to be or they think it might take longer for the return of 2%, they may pass this over to consumers which then create a whole problem on the other side.

Metals – stock of Gold has Increased in recent months

Central Banks have increased their holding of gold for the past Quarters. At RC we expect the purchase to continue due to the ongoing geopolitical and climate related issue. Research shows that retail investor´s interest for Gold has increased since the previous year and that It was stimulated by the credit crunch early on this year.

The futures market for Gold currently stands at +2% from spot. Given the uncertainty for this Quarter and the entirety of the following year for GDP and inflation; the uneasiness of those that have lost access to their capital during the earlier credit crunch, and the much-expected devaluation of US dollar, we see these as further upside risk to the price of Gold.

When it comes to Lithium, the world's largest producers remain bullish on long-term demand for the battery material amid recent price falls, which are fueled by growing concerns of slowing electric vehicles adoption.

Due to rising interest rate, expected economic slowdown and metals supply chain shocks, General Motors (GM.N) and other auto and battery producers have curled back plans for EV expansion. The prices for: basket of prices for lithium, which vary by region and type; lithium investors stock prices; and Producers prices have all fell since the beginning of this year.

Agriculture – Orange Juice price hits is all time high in October

Consumers around the world may have to consider altering 1 of their key breakfast items: orange juice. The price of this single commodity staple food which is a key item in breakfast which has been supporting millions of families with nutrition for decades now.

• Hurricane Irma and Hurricane Ian in 2022;

• Freeze last January; and

• Citrus Greening - a new type of bacterial disease.

The above are impacting crops from Florida which is expected to be the lowest since 1936-37.

The Citrus Greening bacterial disease is also impacting the world's 1st and 3rd orange juice producers, Brazil and Mexico consecutively. Brazil has been recording low harvests in recent years, due to challenging weather conditions while dealing with citrus greening disease.

Orange production for the 2023/24 season in the citrus belt is estimated to fall 1.55% below the previous season's production.

Florida has been struggling with orange production for a number of years now, so the world´s attention shifted to Sao Paulo. But now, the stockpiles of orange juice in Brazil, have reached the lowest since 2011 in a sign of global shortage. Brazil reached the end of its season in June of this year with 84,745 metric tons of juice in storage, a 41% fall in inventory compared to the previous year.

Basically, four of every five cups of orange juice consumed comes from Brazil. Next year, it is expected to recover but it is still going to be low in quantity produced - from Luis Ribera |Texas A&M Agrilife economist.

Orange Juice increased 167.95 USd/Lbs or 81.37% since the beginning of 2023, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity. Historically, Orange Juice reached an all-time high of 431.95 in October of 2023. The current price is ranging from 355-335 USd/Lbs.

Question now is, what is the alternative for this commodity? Surely as price keep on increasing and consumers´ disposable income no longer allows them to purchase this commodity, eventually they will start looking for a different product. Has the demand for range juice declines, the price shall fall as well but until then an alternative is to be found.

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