The year 2018 was arguably one of the most topsy-turvy markets in some time. Rather than just one type of commodity or sector threatening to collapse, a good number of them faced issues.
Many commodity struggles were a result of the ongoing trade disputes between the US and China. Although this conflict shows no clear signs of abating, the retaliatory measures appear to have stopped for now. Earlier in 2018, the steel market was immediately rocked by the US imposing a 25% export tariff on Chinese steel.
This led to a lack of confidence, and agricultural products such as soybeans found their output undermined by tariffs as well. China sourced its soybeans from Brazil and other regions, and US farmers railed against government decisions that had the potential to heavily impact what they could sell elsewhere.
However, soybeans were one of the only crop products to experience problems. Cocoa was one of those leading the charge for growth, ending the year with an increase compared to many other asset types on the markets.
Developments that might occur in 2019 are as yet unknown, but with China seeing a marked decline in the growth of its GDP, it may now reconsider some of the protectionist trade policies that it ushered in as a counter to US President Donald Trump.
Both the US and China have confirmed that they intend to return to talks before February, but unless a new deal takes place, more tariffs are set to occur.
The oil market has had problems as well. While there have been no direct disputes between the US and China on this front, the US has slapped its rival Iran with economic sanctions, including the distribution of oil to other nations. Alongside a series of talks between the US and its allies in Saudi Arabia, the oil price began to tumble. With rising fuel prices worldwide causing discontent among citizens and a headache for governments, it appears that oil’s commodity value is one that Trump is prepared to dispense with.
Global supplies of oil are now up in Russia. This uncertain geopolitical stalemate, as well as the rising threat of climate change, suggests the stockpiling of more oil ahead of future volatility, which remains difficult to predict.
That said, some of the key players in the commodities markets have found their prices driven by fundamentals, allowing cocoa and wheat to find a solid foundation to build upon for the New Year.
Cocoa prices in the UK increased by almost a third in 2018, and although supply should start shooting up more sharply, dry weather in the Ivory Coast meant that there was a noticeable drop in output throughout the year. It is possible that the market may come down from its current peak, although it has finally extended past a six-year low and should not fall that far down again.
A lack of expected crop growth in wheat has also seen a price boost for its demand. Black Sea regions ran drier than originally forecast, and the commodity was up 20% as a whole for 2018. With more uncertainty ahead, commodities such as wheat may be some of the best indicators to follow.