AFKI Commodities Report: Winners And Losers Of 2014

The year 2014 shone bright for arabica coffee, which was seen as one of thebest-performing commodities, with ICE futures recording 50-percent year-on-year gains. Among agri-commodities, cotton was one of the worst performers. But it is crude oil and the collapse in prices in the second half of the year that has been the most dramatic.

Crude Oil Price Tumble

Crude oil prices in 2014 saw their biggest annual decline in six years, and ended the year close to 50 percent below where they started. The dramatic price collapse since June has left benchmarks North Sea Brent crude and the U.S. West Texas Intermediate (WTI) trading at their lowest levels in 5⅟2-years.

Brent crude for February delivery on the London-based ICE Futures Europe exchange finished the year at $57.33 a barrel while WTI for delivery in the same month on the New York Mercantile Exchange (Nynex) closed at $53.27 a barrel. These prices were just half those of the mid-June spikes to over $114 and $106 a barrel respectively, triggered by the ISIS insurgency in northern Iraq.

While growth in global demand for oil is now running somewhat lower than anticipated at the beginning of 2014, it has been largely worries about a global glut of oil that has weighed so heavily on the market.

Traditionally, playing the role of swing producer, the Organization of the Petroleum Exporting Countries (OPEC) now is leaving the market to find its own level. In late November, the group opted to leave its output target unchanged at 30 million barrels per day (bpd). There had been hopes it would decide to cut its production in a move to help support prices.

However, Saudi Arabia and the other big OPEC producers appear to be focused on maintaining their market share in a declining price environment rather than cutting output to help reduce the global crude surplus. U.S. crude production, thanks to the shale-oil drilling boom in the country, is running at 30-year highs.

While the export of crude oil from the U.S. has been the subject of a four decades’ ban, soaring domestic production has helped reduce the country’s crude imports.

The recent moves by U.S. Congress to loosen the crude export ban, which will allow the shipment of ultra-light oil to foreign shores, will undoubtedly intensify the competition for market share – and is more bad news for crude prices.

Even potential price support from news of further damage to Libya’s oil infrastructure in recent days was quickly erased.

Gold records modest loss, palladium gains

Gold ended 2014 slightly down on where it started the year. Overall, bullion lost 1.5 percent of its value year-on-year, although prices have fluctuated sharply through the year.   The modest fall in 2014 marked a second year of annual decline for gold. But the decline in  2013 was more dramatic, with the precious metal shedding 28 percent of its value.

U.S. gold futures for February delivery on the Comex division of Nymex finished 2014 at $1,184.1 a troy ounce. They had closed 2013 at $1,202.3 a troy ounce (basis the February 2014 contract).

Following a positive first quarter, the precious metal began to come under pressure from around the middle of 2014 as a result of a buoyant U.S. dollar, which is ending the year some 12 percent up against other major currencies. The end to the U.S. Federal Reserve’s monthly bond-buying program and an anticipated sooner-than-expected hike in U.S. interest rates amid an improving U.S. economic recovery has also weighed heavily on gold. Weak physical demand for the precious metal from top consumers China and India has also been a factor adding to negative sentiment.

Among other precious metals, palladium ended 2014 in positive territory with gains of about 11 percent on the year. U.S. palladium futures on Comex for March ended at $798.40 an ounce, up from $718.30 an ounce at the close of 2013.

Arabica coffee – the star performer

Arabica coffee futures are set to end 2014 some 50 percent up on where they started the year. The main driver has been concern about the impact of the worst drought conditions in decades in January and February in top grower Brazil on the country’s coffee output. However, prices are now around 26 percent down from the 2⅟2-year highs reached in early October after the arrival of rains in Brazil’s key coffee-growing areas.

The rains have gone some way to assuage worries about the extent of drought damage to the country’s coffee bean trees and the potential impact on 2015’s production. The much-needed moisture has created more conducive conditions for the development of coffee cherries for the next harvest, which gets underway in May and finishes around September. However, some market watchers remain more pessimistic, arguing irreversible damage already has been done.

March arabica coffee on New York’s ICE Futures U.S. exchanged finished 2014 at $1.6660 a pound, after dipping to $1.6465 a pound on Dec. 29, the lowest for the front month since mid-July. Arabica futures had come under renewed pressure after investors liquidated long positions in what is now seen as an increasingly bearish market.

ICE arabica had climbed as high as $2.2550 a pound on Oct. 6 when concerns about the 2015 crop were at their height. This represented the strongest level for a front-month since January 2012, In April, arabica futures had moved as high as $2.157 a pound following initial assessments of the damage to the 2014 crop.

ICE March arabica closed 2013 at just $1.1070 a pound as abundant global stocks weighed on prices.

Unlike the arabica coffee market, there are few concerns about any shortage of robusta beans. While robusta futures have benefited on the back of arabica’s coattails, their rise has been less meteoric, with the second-position contract (now March) ending 2014 at $1,1916 a tonne, and some 12 percent up on where it had started the year.

Export shipments from the largest producer of robusta coffee beans in the final quarter of 2014 were an estimated 8.6 percent up at 299,800 tonnes from the same year-earlier period, according to Vietnam government figures. However, the U.S. Department of Agriculture (USDA) currently sees Vietnam’s 2014-2015 output easing some 1.6 percent to 29.4 million bags from the record 30 million bags produced in 2013-2014.

Cocoa Keeps Climbing

Cocoa also stands out among the soft commodities, with futures prices climbing sharply in the first nine months of 2014, underpinned by industry buying and expectations of another year of global deficit. In late September, worries that the Ebola epidemic would spread to the world’s top two cocoa producers, Côte d’Ivoire and Ghana, and disrupt cocoa supplies from those countries, pushed cocoa futures to a 3⅟2-year high.

The front-month contract on ICE (then December) hit a $3,399 a tonne on Sept. 25, its highest level since April 2011. London cocoa for delivery in the same month climbed to £2,187 a tonne.

Cocoa prices subsequently retreated as the market has been seen to be shifting into surplus. However, in the closing days of 2014 cocoa futures were finding some renewed support on worries that dry weather and strong Harmattan winds blowing across Côte d’Ivoire from the Sahara could damage the country’s 2014-2015 crop. Côte d’Ivoire typically produces around 40 percent of the world’s cocoa beans.

Lower year-on-year to date bean arrivals at the West African producer’s ports were also helping prices. Reuters quoted exporter estimates of a 15 percent decline in arrivals by Dec. 28 since the start of the season on Oct. 1 at 756,000 tonnes against 890,000 tonnes in the same period in 2013.

ICE cocoa futures for March gained $23 to settle at $2,964 a tonne on Dec. 29 but had eased back to close the year at $2,910 a tonne. In London, March cocoa finished 2014 at £1,980 a tonne, some £6 down on the day.

Front-month cocoa in London, nevertheless, ended 2014 up 14 percent year-on-year while ICE cocoa gained 7 percent. This marked the key chocolate-making ingredient’s third year of gain.

Losing streak for sugar & cotton

In sharp contrast to arabica coffee and cocoa, sugar and cotton traded at multi-year lows as 2014 drew to a close.

Large global stocks continue to weigh heavily on world sugar prices with benchmark ICE raw sugar futures finishing 2014 at a three-month low, and close to 12 percent down on 2013’s finish. 2014 was raw sugar’s fourth year of annual decline.

A weakening real against the U.S. dollar, which encourages Brazilian producer selling in dollar-traded commodities like sugar in that it boosts local currency returns, is also further pressuring prices.

March raw sugar on ICE Futures U.S. dipped to a contract low of 14.47 cents a pound on Dec. 31 before settling at 14.52 cents, 0.09 cents down on the day. The front-month contract closed 2013 at 16.41 cents a pound.

March white, or refined, sugar on London’s ICE Futures Europe settled at $391.20 a tonne on Dec. 31, $4.10 up on the day, and managing to hold above the contract low of $383 a tonne recorded on Dec. 17. March white sugar is now around 13 percent down on its 2013 close at $449 a tonne, and, like raw sugar, has now seen four straight years of annual decline.

The sweetener will continue to face strong headwinds according to Rabobank.

“The principal driver of these price developments has been the continued weight of global sugar stocks on the market,” said the bank in its Sugar Quarterly Q4 2014 report, published Dec. 23. “This is currently expected to diminish only modestly over 2015.”

At this stage, Rabobank said, global production in the 2014-2015 international crop year appears not to have responded significantly to low prices, though – it added – plenty of time remains for revisions to forecasts for important countries.

Cotton at five-year low

Cotton was one of the worst performing agricultural commodities of 2014, with benchmark ICE futures in New York shedding close to 29 percent of their value to trade at their lowest level in five years in late November. ICE march cotton closed 2014 at 60.27 cents per pound, some 24.34 cents down on its 2013 finish at 84.64 cents. On 21 Nov., the front-month contract (at the time, December) had dipped to a five-year low of 57.84 cents a pound but since then has managed largely to stay above 60 cents a pound.

Huge global stocks and sharply lower imports by top consumer and importer China following Beijing’s decision to scrap its cotton stockpiling program in favor of direct subsidies to the country’s farmers have weighed heavily on global cotton markets in recent months. The stockpiling scheme made it cheaper for Chinese companies to import the fiber rather than buy home-grown product and over the three years it was in place provided significant support for world cotton markets and prices.

While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author can accept no responsibility for any errors or any consequence arising from the information provided.