The U.S. dollar remains the world’s reserve currency and the pricing mechanism for most commodities. The dollar’s exchange rate versus other reserve fiat currencies is often a function of interest rate differentials. At the Fed’s August Jackson Hole meeting, Chairman Powell sent a strong message that inflation has moved toward the central bank’s 2% target and that market participants should expect a decline in the short-term Fed Funds Rate at the September FOMC meeting. Lower rates tend to weigh on the dollar’s value against other currencies.
Meanwhile, the U.S. dollar index fell, and bonds rose in August, which tends to be bullish for commodity prices. However, the raw materials sector turned in a mixed performance from the July 2024 through the August 2024 closing prices.
The monthly changes in key commodities and related markets
The leading commodities and related markets posted the following results for August 2024:
As the chart shows, the U.S. dollar index fell 2.31%, and the U.S. long bond futures moved 0.92% higher, which supports higher commodity prices. However, the asset class turned in mixed results last month.
Soft commodities continue to lead the asset class
Soft commodities, including sugar, Arabica coffee, cocoa, cotton, and frozen concentrated orange juice futures traded on the Intercontinental Exchange posted across-the-board gains in August.
In 2023, the soft commodities composite led the other sectors in the commodities asset class with a 24.04% gain. Over the first six months of 2024, the softs rallied another 26.76%, leading the asset class over the first half of this year. The bullish price action continued in August, with the explosive cocoa and frozen concentrated orange juice markets posting over 9% gains. While cocoa reached an all-time high in April, FCOJ futures for September delivery rose to a record over $5.25 per pound on August 26.
Cocoa’s rise occurred as West African supply concerns continue to leave prices at record levels compared to the pre-2024 high. The Ivory Coast and Ghana are struggling with weather issues, weighing on production forcing chocolate manufacturers to increase prices and shrink portions.
FCOJ’s increase to a new high is a result of the decline in Floridian production because of citrus greening disease and extreme weather conditions in Brazil, the world’s leading orange-producing country.
Gold remained a bullish beast
FCOJ was not the only commodity to reach a new record peak in August 2024. Gold, a hybrid between a commodity and a currency, rose to a record $2,570.40 per ounce peak last month.
The long-term chart highlights gold’s bullish journey from the 1999 $252.50 bottom to over ten times that price in August 2024. While silver, platinum, and palladium prices slipped in August 2024, gold finished the month with a 3.21% gain from the end of July.
Energy was mostly lower, and meats reflected the seasonal shift
Ethanol and coal prices posted gains in August, but the other energy commodities suffered declines. Gasoline led the way on the downside with a 10.89% drop, and the gasoline crack spreads fell over 40%. The bearish price action in the fuel reflects the end of the driving season, which runs through late spring and summer and ends in the fall when students return to school and the vacation driving season ends. Gasoline weakness will likely continue over the coming months as drivers put less mileage on their vehicles.
Animal protein futures moved in opposite directions as cattle futures fell and lean hogs rallied. The end of the 2024 peak grilling season likely accounted for the decline in beef as the BBQ season runs from late May through early September. Hog prices have remained under the $1 level throughout the 2024 grilling season, so the move higher to over 80 cents in choppy trading was not a surprise. Live and feeder cattle were the worst-performing agricultural commodities, but they have been in bullish trends since the 2020 lows. Live cattle ran out of upside steam on the continuous futures contract in June 2024. Feeder cattle peaked in late May. While cattle futures prices fell in August, they remain at elevated historical prices. Seasonality at the end of the summer likely weighed on beef prices. As the markets move into the fall, lower lows are possible.
In other sectors, COMEX copper futures edged slightly higher after falling from a record high earlier this year. Copper is digesting the move from nearly $5.20 per pound to below $4, where it found a bottom. Physical lumber futures were lower and remained around the $500 per 1,000 board feet level. Grains remain near the recent lows after exploding higher in 2022 and correcting. The end of the 2024 crop year is on the horizon, with grain and oilseed prices under pressure as supplies are adequate to meet the global demand.
What to expect in September
The winter months tend to lead to gains in natural gas as its price often peaks when the heating demand rises. The following factors are likely to influence prices in September and beyond:
- The Fed will likely trim the Fed Funds Rate at the September FOMC meeting, putting upward pressure on bonds and downward pressure on the dollar index. A fifty-basis-point cut would likely lead to more dramatic price moves in the commodities asset class.
- The wars in Ukraine and the Middle East continue to be a factor that could elevate price variances in energy and grain markets over the coming month.
- The trend in gold remains higher. De-dollarization because of the bifurcation of the world’s nuclear powers and central bank gold purchases remains a bullish factor for the gold futures market.
- Commodities have been in a long-term bull market since the 2020 pandemic-inspired lows. The trend is always your best friend in markets. A diversified commodity portfolio has done well over the past years, and buying on price weakness has been optimal.
Finally, cryptocurrency prices moved lower in August, with Ethereum underperforming Bitcoin. Expect lots of volatility from the boom-and-bust cryptos over the coming months.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
