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Andrew Hecht

Which Commodities are Undervalued Going into 2024?

Happy New Year! As we move into 2024, selling in several commodity sectors could set them up for gains over the coming year. Some raw material markets have declined to price levels, offering significant value. In my previous Barchart article on the commodities that did the best in 2023, I highlighted the winners for the year. My final 2023 article will focus on the markets that fell the most and stand the best odds of recovery in 2024. 

Precious and base metals- PGMs and industrial metals offer value

As of December 27, while COMEX gold and silver futures were higher, NYMEX platinum group metals were significantly lower than at the end of 2022. 

The continuous contract chart highlights platinum’s nearly 7% decline from $1,073.70 on December 29, 2022, to $998.70 on December 27. 

Palladium suffered a more significant decline, falling 35.5% from $1,789.30 at the end of December 2022 to $1,1160.50 on December 27, 2023. 

Platinum and palladium were the worst-performing precious metals in 2023, and the losers during one period often become winners during subsequent ones. Platinum and palladium prices have declined to levels that could offer value, with significant upside potential and limited downside risk in 2024.

While COMEX copper futures and LME copper and tin three-month forwards posted slight gains in 2023, the prices of other base metals, including aluminum, nickel, lead, and zinc, declined. As of December 22:

  • COMEX copper was 3.8% higher in 2023
  • LME copper rose 2.4% since the end of last year
  • LME aluminum was 2.2% lower
  • LME nickel plunged 45%
  • LME lead was 10% lower
  • LMEW zinc fell 12.5%
  • LME tin moved 0.23% higher 

Base metals are industrial commodities and critical for building infrastructure. Moreover, expanding green energy initiatives requires base metals. Meanwhile, China is the leading base metal consumer. Economic weakness in the world’s second-leading economy has weighed on the sector. If China’s economy improves in 2024, expect significant gains in the base metals that posted losses in 2023. 

Energy: Across-the-board losses tend to lead to across-the-board gains

WTI and Brent crude oil futures were the only energy commodities to post under 10% losses since the end of 2022. As we have witnessed over the past years, energy is a boom-and-bust commodity sector where one year’s implosions often lead to the following year’s explosive price action. 

In 2020, NYMEX futures fell below zero for the first time as storage facilities could not accept more petroleum. In 2022, the price rose to the highest level since 2008 at over $130 per barrel as Russia’s invasion of Ukraine threatened worldwide supplies. Meanwhile, U.S. natural gas futures fell to a twenty-five-year low below $1.45 per MMBtu in 2020 before rising to a fourteen-year high at over $10 per MMBtu in 2022. 

Double-digit losses in gasolineheating oil, refining spreads, natural gasethanol, and Rotterdam coal could lead to rebounds in 2024. Geopolitics and U.S. energy policy under the Biden administration could support higher traditional energy prices in the coming year. 

Grains are inexpensive

Oat futures were the best-performing grain in 2023, posting a 1.2% gain through December 27. Rice futures moved 4.4% lower, and all the other grains, including soybeanssoybean meal, soybean oil, cornCBOT wheatKCBT wheat, and MGE wheat, posted double-digit percentage losses, with corn declining the most with a nearly 30% plunge. 

Prices peaked in 2022 on supply fears when Russia invaded Ukraine as Europe’s breadbasket and the critical logistical hub at the Black Sea Ports became a war zone. The ongoing war in Ukraine and the bifurcation of the world’s nuclear powers that threatens trade and logistical routes continue to threaten the supply chain that feeds and increasingly powers the world. Corn and soybeans are critical biofuel inputs. Moreover, worldwide population growth has taken the global population over the eight billion level, meaning supplies must keep pace with the increasing demand each year. 

At the current levels, grains offer value. The weather and geopolitical events will determine the path of least resistance of gain prices in 2024. Grains have declined to levels where risk-reward favors higher prices next year. 

Soft commodities: Expect cotton to rebound and lumber to rally in spring

Many soft commodities roared higher in 2023, with world sugar, cocoa, and frozen concentrated orange juice futures reaching multi-year or all-time highs. Arabica coffee futures reached their highest price since 2011 in 2022, and the price remained elevated and moved higher in 2023. The sector’s weakest link was cotton, the only soft commodity, posting a loss in 2023 as of December 27. Cotton was down over 4% for the year after reaching an eleven-year high in 2022. Cotton’s price consolidated in 2023, and the uncertainty of the annual 2024 crop could lift prices in the spring. 

Meanwhile, falling interest rates and pent-up demand in the new home market could increase lumber prices in 2024. The CME’s physical lumber futures contract was over 10% higher in 2023, but the boom-and-bust history and more attractive mortgage rates could ignite a rally next year. Lumber tends to rally in spring. 

Animal proteins: Hogs lagged; will they lead in 2024? 

The fat and feeder cattle futures rallied in 2023 as supplies declined and production costs increased. Meanwhile, lean hog futures declined by nearly 21% as of December 27.  

Expect the hogs to recover as the market moves towards the 2024 grilling season beginning in late May. Meat prices tend to rally as the season approaches, so cattle and hog futures could see upward pressure in March and April. Hogs underperformance in 2023 could lead to an outperformance compared to cattle in 2024. 

Each commodity has idiosyncratic supply and demand fundamentals, determining the path of least resistance of prices. The prospects for lower interest rates could weigh on the U.S. dollar’s value. Since the dollar remains the world’s reserve currency and benchmark pricing mechanism for most commodities, a falling dollar and lower interest rates favor higher raw material prices in 2024. 

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.
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