A composite of 29 commodities trading on the U.S. and U.K. futures exchanges moved 4.52% lower in 2023. While energy commodities led on the downside with an over 20% decline, grains fell more than 13%, base metals were down over 10%, and precious metals dropped over 8% despite gold’s 2023 double-digit percentage gain. A significant decline in palladium prices drove the rare precious metals sector lower. Animal protein prices slightly increased by under 2% for the year, while soft commodities moved over 24% higher. Cocoa and frozen concentrated orange juice futures prices soared in 2023.
Cocoa catches up- New record highs in FCOJ
In 2022, coffee and cotton reached multi-year highs, and sugar and futures did the same in 2023. FCOJ exploded to a new record peak in 2023.
Cocoa lagged behind the other soft commodities but caught up with an explosive rally in 2023.
The chart shows cocoa futures rose to $4,478 per ton in December 2023, the highest price since 1977. Cocoa futures moved 61.4% higher in 2023, leading the soft commodities and all other agricultural and raw material markets last year. Nearby cocoa futures settled at $4,196 per ton on December 29, 2023, and were higher in early January above the $4,260 per ton level.
Meanwhile, FCOJ futures were the second-leading commodity in 2023, posting a 46.41% annual gain.
The chart shows FCOJ futures rose to a record $4.3195 per pound high in October 2023. Nearby futures settled at $3.0220 at the end of last year and were higher at the $3.4850 level on January 8.
Coffee recovered- Sugar edged higher
Arabica coffee beans on the Intercontinental Exchange posted the next highest annual return, rallying 12.55% in 2023.
The chart highlights coffee futures rally from $1.6730 at the end of 2022 to $1.8830 in 2023’s final trading session.
World free market sugar futures also increased but closed far below the 2023 high. After closing 2022 at 20.04 cents per pound, the price peaked at 28.14 cents in November 2023 before closing the year 2.7% higher at 20.58 cents per pound. March futures were slightly higher at over 21 cents on January 8.
Cotton was the laggard
Cotton was the only soft commodity posting a decline in 2023.
The monthly chart shows cotton’s 2.84% decline from 83.37 cents at the end of 2022 to 81.00 cents per pound on December 29, 2023. However, cotton traded at its highest price since 2011 in 2022, when it reached $1.5802 per pound.
A repeat performance is unlikely
The soft commodities sector was over 24% higher in 2023, leading all other sectors. While animal proteins posted a slight gain, energy, metals, and grain prices declined.
The best-performing sector for one year tends to be a laggard the following year, but the weather, crop diseases, and logistical issues can cause further gains in 2024. Meanwhile, since cotton was the worst-performing soft commodity and the price tends to reach seasonal highs during spring and summer, cotton could be a sleeper going into the new year.
The bull and bear cases for softs in 2024
The bear case for soft commodities this year is:
- Prices have reached multi-year, or in FCOJ’s case, all-time peaks in 2022 and 2023. Prices tend to rise where production increases, inventories grow, and the demand declines, causing them to correct lower.
- Inflationary pressures are receding, causing production costs to decline.
The bullish case is:
- The weather uncertainty, crop issues, and logistical problems in critical growing regions.
- Increasing global demand because of population growth.
- The overall bullish paths of least resistance of prices as the trend is always your best friend.
Soft commodities have been bullish beasts over the past two years. Time will tell if there is enough upside pressure to keep the bullish trends intact in 2024.
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.
