Commodity prices turned mixed results in September even though bullish price action in the bond market pushed interest rates lower, and bearish action in the dollar index tends to be bullish for raw material prices.
The Fed surprised markets with a 50 basis point Fed Funds Rate cut at the September FOMC meeting, which tends to be bullish for commodities. Meanwhile, lower rates weighed on the U.S. dollar index. Since the dollar is the benchmark currency for most commodities, a weaker dollar tends to support raw material prices.
As we head into the fall and winter, many commodities remain in bullish trends that have taken them to higher lows and higher highs since the 2020 pandemic-inspired bottoms. September’s price action in commodities was as follows:
Stocks and bonds rallied while the dollar index declined. Cryptocurrencies posted gain, with Bitcoin outperforming Ethereum, during the month that ended on September 30, 2024.
Metals Rally- Gold reaches a new record high
Silver and palladium posted the most impressive gains in the precious metals sector, moving 9.49% and 8.11 higher, respectively. While platinum was up over 5%, gold reached new record highs. Gold moved 6.18% higher and traded to a new record peak.
The ten-year COMEX gold futures chart highlights the move to a record $2,708.70 peak, with gold trading at over the $2,650 level on September 30. Falling interest rates, a weaker dollar, and the deterioration of faith and credit in fiat currencies have caused gold prices to appreciate over tenfold since the 1999 $252.50 per ounce low.
Meanwhile, platinum, copper, and base metals prices rallied in September. COMEX copper futures rallied by 9.01%. News that the Chinese government cut interest rates to stimulate the economy is bullish for copper and industrial metals as China is the demand side of the base metals fundamental equation. Highly rate-sensitive lumber prices posted a nearly 5.80% gain.
Energy prices decline but exhibit seasonal price action
Energy futures turned in a mostly bearish September performance with declines in crude oil, oil products, crack spreads, ethanol, and Rotterdam coal. However, natural gas posted an impressive 17.01% gain, making it the leader of the energy complex.
The three-month chart illustrates the upward price momentum in nearby NYMEX November natural gas futures that settled at $2.923 per MMBtu on the November contract.
The price action in energy reflects seasonality. The peak driving season during spring and summer ended, reducing gasoline demand and weighing on oil and oil product prices. Falling crack spreads indicate the weak seasonal demand for oil products. Lower oil prices caused coal and ethanol prices to decline.
Soft commodities continue to roar- Sugar leads the way on the upside as FCOJ futures reach new highs
The soft commodities sector was the upside leader in 2023 and over the first six months of 2024. In September, the bullish price action continued for the sector, which posted across-the-board gains.
Sugar was a laggard over the past months, but September’s price action allowed the sweet commodity to catch up with the bullish trends in the soft commodities sector.
The ten-year world sugar futures chart shows a bullish trend since late August, which lifted sugar price to the highest level since February 2024. Drought and fires in Brazil, the world’s leading free-market sugarcane-producing country, have lifted sugar prices.
While sugar led the soft sector, frozen concentrated orange juice futures posted a 0.16% gain and rose to a new record peak.
The long-term chart illustrates September’s explosive move to over $5 per pound. Brazil is also the world’s leading orange-producing country. Drought and fires destroying crops have led to supply concerns and a record-high price.
Arabica coffee futures rose 10.74% in September to the highest price since 2011, and cocoa futures were 0.66% higher. Cocoa remains at the highest pre-2024 price in history due to West African supply concerns. Finally, cotton, a laggard over the past months, posted a 5.17% gain as the price recovered from the August 66.26 cents per pound low to 73.61 cents on September 30.
Grains and animal proteins post gains
The leading grain futures, including soybeans, corn, and wheat, increased in September as the markets moved into the 2024 harvest season. While the grain and oilseed futures posted gains, they remain near the recent lows as supplies are adequate to meet worldwide consumer demand. September’s price action could be a bottoming sign for the soybean, corn, and wheat markets, with all three markets up between 5% and 6% for the month.
Animal proteins tend to reach seasonal lows after the annual grilling season, which runs from late May through early September. In a sign of strength, live and feeder cattle futures and lean hog futures posted gains despite the beginning of the offseason for demand. The December live and November feeder cattle futures rose over 4%, while December lean hogs edged 0.69% higher.
Expect lots of volatility over the coming weeks
The Fed’s 50 basis point Fed Funds Rate cut and news that the central bank expects another 50 points lower by the end of 2024 is bullish for commodity prices. As the dollar index approaches a challenge of the psychological 100 level, a weaker U.S. currency adds to the bullish case. While energy (sans natural gas) and animal proteins face seasonal weakness in October, the debt and currency markets favor higher commodity prices. However, even the most aggressive bull markets rarely move in straight lines. The higher the prices rise, the greater the potential for fast and furious corrections.
The U.S. election, seasonal stock market weakness in October, wars in the Middle East and Ukraine, and the bifurcation of the world’s nuclear powers remain clear and present dangers for markets across all asset classes that could cause sudden price variance. Expect lots of volatility in markets in October, as the path of least resistance of all market prices reflects the economic and geopolitical landscapes.
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.
