Many investors expect commodities markets to struggle for a fourth consecutive year in 2014, as steady-but-unspectacular economic growth extends a rough patch for what had been one of the hottest investment niches of the past decade. In 2013, investors appeared to finally give up on hopes for the return of the "supercycle," the confluence of tight supplies and surging demand that propelled prices for commodities ranging from oil to aluminum to wheat to records in the past decade. Years of high prices persuaded farmers to boost crop output and metal producers to invest in new mines. In 2013, those efforts flooded many markets with more supply than a barely expanding global economy could consume. The Dow Jones-UBS Commodity Index, which tracks 22 U.S.- and London-traded commodities, fell 9.6% in 2013, the third consecutive annual loss. With the S&P 500-stock index climbing 30% this past year, the gap between commodities and stocks was the widest it has been since 1998. Investors and analysts expect more of the same. Analysts with Citigroup Inc. C +0.31% are bearish or neutral on 19 of the 23 commodities tracked by Citigroup, even as the bank forecasts that global economic growth is expected to accelerate to 3.2%, from 2.5% this year.I wouldn't be surprised if grain markets just trend lower and lower all year. I think this is going to be a very tough year. Hopefully, I'll be wrong. Where grain prices are right now, I can't see land prices remaining propped up where they've been.
"There's going to have to be a huge shift in market psychology to have commodities bounce higher," said Ralph Preston, a market strategist with Heritage West Financial in San Diego. Growth in China, the world's largest consumer of raw materials, is widely expected to continue at a pace close to the state-targeted figure of 7.5% for 2013. But that expansion would remain a step below the frantic growth seen during the past decade's commodity boom. While the country will likely consume greater quantities of most commodities in 2014, analysts caution that a slower-expanding China may not be enough to absorb the increased global output of agricultural commodities, minerals and fuel. In industrial metals, aluminum and steel are locked in a chronic surplus, and iron ore and copper are set to join them as production ramps up from megaprojects in Peru, Mongolia, Australia and other countries. It is the same story for agricultural commodities such as corn, whose stockpiles are set to more than double next year in the U.S., and for sugar.
Thursday, January 2, 2014
Commodity Markets Look Bleak in 2014