What can we expect from commodity markets in 2023?

Take a look at the factors and events that will influence commodity markets in 2023

February 3, 2023

hEDGEpoint Global Markets

If the year 2022 was marked by volatility, the commodities market in 2023 requires even greater attention to global movements. Events from last year may continue to impact this year. In addition, there are unpredictable factors and the weather, which always directly impacts commodities.

This general instability highlights the need for a risk management strategy. For this reason, hEDGEpoint’s team of experts has prepared this content with perspectives for the agricultural and energy market in 2023.

The Macroeconomic Scenario in 2023

Those who follow the economic News know that 2022 was a historic year in relation to monetary policies. Central banks around the world were forced to take decisions to fight inflation. Thus, interest rates rose to the highest levels in the last 40 years.

This situation in developed countries concerns commodity producers. This is because high rates usually weaken the tendency to consume, and in turn, can trigger fewer imports.

The war in Ukraine, which does not show evidence of a short-term resolution, will continue to impact commodities, mainly in Europe. To compensate for the lack of piped gas, the region began to import LNG. It turned out to be yet another inflationary factor.

Companies in the fertilizer sector are also betting on investments in Asia, due to high energy costs in Europe. Factors like this suggest that the region’s economy may underperform in 2023.

The event that has generated great expectations for the entire commodity chain is the reopening of China. As a major importer of commodities, the recovery of the Chinese economy brings considerable optimism to the market.

Soybean and corn, for example, are the commodities most associated with that country: they should experience a great Chinese influence in 2023.

The Energy Sector in 2023

The oil and gas market just finished a remarkable year. The invasion of Ukraine caused supply shocks to be widely felt, as countries lost access to many products due to sanctions against Russia.

Thus, there was only a small flow of Russian gas to Europe, while the prices of energy commodities were extremely volatile. Brent almost reached US$140/bbl in early 2022, but ended the year at US$80/bbl.

2023 shouldn’t be too different, but there are factors that require more caution. There’s a risk that a recession is on the way in the West, and then there’s the reopening of China, which could increase exports to regions where inventories are tight.

The energy market this year will play a crucial role in the dynamics of global inflation. Especially if China’s comeback turns out to be stronger than initially expected, it will offset the impacts of a likely economic downturn in some western countries.

Perspectives for Agricultural Markets in 2023

In agricultural commodity markets, the same events that influenced 2022 will also impact 2023. The war in Ukraine continues to have a great effect on commodities such as wheat, for example, as the country is one of the globe’s biggest exporters.

On the other hand, high 2022 production levels in Brazil, Russia, and Australia brought some relief on the supply side, as did the Grain Corridor Agreement in Ukraine and its renewal until the first quarter of 2023.

Another point that directly impacts agricultural markets is clearly the weather. There’s a high probability that an El Niño phenomenon will occur. Even if it’s possible to predict, it’s not possible to completely avoid. And if it does happen, it should affect 23/24 harvests.

In the sugar market, expectations are positive for the development of the next Brazilian crop that starts in April 2023. This should contribute to the increased availability of the sweetener in the global market, given the context of crop deterioration in the northern hemisphere.

In the case of coffee, there are prospects for improved production in 23/24, bringing the expectations of a surplus. Global production of 172.8M scs, along with a global demand of 174.78M scs, are expected in the current cycle, which runs from October of 2022, to September 2023.

In terms of soybeans, total 22/23 production is likely to be a record due to Brazil (which we estimate will be 150M tons vs. the USDA prediction of 153M ton), helped by better production in Paraguay.

USDA numbers point to a somewhat comfortable global surplus. But in Brazil, the weather will be a key variable, especially between March and June, after the planting is carried out in February and March.

The new government also hasn’t made it too clear what the next steps are related to agriculture, especially soy. Certainly, the reopening of China is a factor which will cause great influence, as the country is the world’s largest consumer of the grain.

How do you protect yourself from volatility in commodity markets?

With so many variations that affect already unstable commodity markets, it’s vital to plan so that you ensure more predictability and security for the future of your business.

Using a hedging strategy is the best option to avoid unpleasant surprises in the financial plans of those working in the commodity chain. One specialty of hEDGEpoint, this mechanism operates as a kind of insurance against market price variations, reducing transaction risks.

hEDGEpoint combines the knowledge of specialists with risk management solutions through technology, and customized consulting, to always offer the best experience in futures operations.

We are globally present, and always prepared to serve you—at any time, in any place. Get in touch with a consultant today to learn more about how to use this instrument to favor your business.

Talk soon to a hEDGEpoint specialist.

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