Soft commodities led the commodities asset class in 2023 with a 24.04% gain. In Q3, the sector that includes world sugar, Arabica coffee, cocoa, cotton, and frozen concentrated orange juice futures rose 8.32% and was 36.23% higher over the first nine months of 2024.
In a md-July Barchart article on the soft commodities sector in Q2 and beyond, I concluded:
The trend is always your best friend and remains bullish in soft commodities. Cotton has been the laggard, and sugar futures have underperformed cocoa, coffee, and FCOJ. Time will tell if the two laggards become the leaders over the coming months, as their prices are at levels that could offer significant value in the current environment.
While cocoa prices edged lower in Q3, coffee, sugar, cotton, and FCOJ futures posted gains. Coffee and sugar led the sector higher over the three months, while FCOJ rose to a new record high before correcting.
Cocoa prices edged lower but remain at record levels
Nearby cocoa futures prices edged 0.90% lower in Q3 but were 84.03% higher over the first nine months of 2024.
The ten-year chart highlights that nearby ICE cocoa futures settled at $7,722 per ton on September 30, 2024. Cocoa futures are virtually unchanged in early Q4 but remain higher than the pre-2024 all-time high.
Cotton and world sugar futures recover, with sugar posting a double-digit percentage gain
While nearby cotton futures recovered in Q3, posting a 5.44% gain, cotton is the only soft commodity that has moved lower over the first nine months of 2024, falling 9.12% over the first three quarters.
The monthly chart shows that nearby cotton futures settled Q3 at 73.61 cents per pound and were only slightly lower in early Q4.
World sugar futures rallied 11.67% in Q3 and were 10.16% higher over the first nine months of 2024.
The monthly world sugar futures chart shows the sweet commodity settled Q3 at 22.67 cents per pound and was just below that level in early Q4.
Sugar and cotton futures recovered in Q3, with sugar turning a decline since the end of 2023 into a gain with the most recent quarterly results.
Arabica coffee leads the way on the upside- FCOJ rises to a new record high
Arabica coffee futures on ICE led the sector higher, with an 18.04% Q3 gain and a 43.52% increase over the first nine months of 2024.
The monthly chart highlights Arabica coffee’s Q3 closing price at $2.7025 per pound. Nearby coffee prices corrected lower in early Q4. Meanwhile, nearby ICE Robusta coffee futures in Europe reached a new record high in Q3.
Frozen concentrated orange juice, the most illiquid soft commodity, rose 6.55% in Q3 and was 52.56% higher over the first nine months of 2024.
The monthly chart illustrates that nearby FCOJ futures settled Q3 at $4.6105 per pound after trading to a new record peak at over $5 during Q3. Nearby FCOJ futures were higher in early Q4.
The outlook for Q4 and beyond- The trend is your friend, and Brazilian conditions are bullish
Brazil is the world’s leading producer and exporter of free-market world sugar, Arabica coffee beans, and oranges. Adverse weather conditions in Brazil have caused prices to rise. Moreover, higher input costs and a weaker U.S. dollar have added to the upward price pressure.
West African countries, the Ivory Coast and Ghana, produce and export over 60% of the world’s cocoa beans. Weather and crop disease have caused cocoa prices to rise to the highest level in history. Meanwhile, cotton prices declined from the May 2022 $1.5595 high, the highest price since the 2011 nearly $2.20 per pound peak, to 66.26 cents in August 2024. At below 75 cents per pound, cotton futures may have found a significant bottom and could continue to move higher over the coming weeks and months. However, cotton prices tend to peak during spring.
Soft commodities were the best-performing sector of the asset class in 2023, over the first nine months of 2024, and in Q4 2024. The higher prices rise, the greater the odds of corrections. However, the sector’s trend remains bullish in Q4 and beyond, and the trend is always your best friend.
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.
