Commodity Wrap - Best and worst markets of 2021

2021 Summary

2021 was a very good year for commodity markets. Strong gains booked by most commodities were driven by an increase in oil price that led to higher costs across many industries. Coronavirus disruptions led to emergence of supply bottlenecks what additionally boosted prices. All of this happened in spite of US dollar strengthening and a hawkish shift in policy of many central banks. Most commodities gained but there is also a group of underperformers. A ranking presented below comes from Bloomberg and commodities are ranked based on futures contract price changes (adjusted for rollovers).

Commodities ranked by price returns adjusted for futures contracts rollovers. Source: Bloomberg

Best commodities

It is a common thing for such rankings to show more "exotic" commodities as leaders. The same can be said for the Bloomberg ranking as it highlighted tin, canola or lean hogs as top performing commodities. However, corn and coffee also ranked high and those are 2 markets we will take a closer look at.

Corn

• 90% year-to-date gain including rollovers (around 30% YTD gain for spot price)

• Solid first half of the year as rally from the 2020 continued

• Issues with plantings, cold winter leads to high uncertainty

• US stockpiles dropped to very low levels

• China started to import large quantities of corn from the United States

• Improvement in future outlook led to price drops in the second half of 2021

Corn prices have been recovering since the end of September and have climbed back above 600 cents per bushel. Source: xStation5

Coffee

• Coffee prices have been rebounding since mid-2020 as coffee production in Latin America drops on the back of higher costs

• Coronavirus led to problems with deliveries

• Demand was still recovering from 2020 pandemic hit

• Frost in Brazil was the main driver of coffee price gains. Cold weather may lower production by millions of bags of coffee

• Production outlook for Brazil are unlikely to improve of the next 2-3 years

• Coffee stockpiles on exchanges continue to drop

Historic highs for coffee can be found in 300-330 cents per pound area. Current fundamental situation may push the price back to these levels as the outlook for supply-side improvement looks bleak. Source: xStation5

Worst commodities

The worst performing class of commodities were precious metals. Year of underperformance comes after a strong 2020 when precious metals topped rankings. A shift in central bank policy and guidance, that also led to strengthening of USD, can be named as a reason behind this underperformance. Gold has benefited from inflation concerns but it was a short-term rally. A year-to-date drop in gold prices was relatively small however. Precious metals that also have an industrial use performed far worse.

Palladium

• The worst performing metal in 2021 ranking

• Solid beginning of the year - recovery in car production and news of lower output in Russia

• However, shift in central banks' policy and USD strengthening led to trend reversal

• Issue with semiconductors that threatened to limit car production also contributed to price drop

• Palladium is used mainly in catalytic converters in combustion engine cars

• Demand started to shift away from palladium and into platinum market, due to lower costs

Palladium price found itself under pressure in the Q3 2021 in spite of a promising beginning of the year. Source: xStation5

Silver

• Silver performed similarly to gold

• Inflation concerns that boosted gold price failed to move silver price

• Jewellery demand dropped, ETFs bought a lot of silver at the beginning of the year but turned to selling later on

• Silver price held above a key support level

Silver dropped over 10% this year. On the other hand, silver price has been trading in a wide 9-dollar consolidation range since August 2020. Source: xStation5