2020: The evolution of commodities

2020: The evolution of agricultural commodities, oil, gold, dollar and, stock indices

In less than two days, the year 2020 will be ending and, it will be possible to say that it was a year that developed in a completely unexpected way, where the general trend was wide volatility and uncertainty.

In 2020 there was enormous volatility in the agricultural commodity markets. The prices of these products were already very weakened by the intense trade war between the US and China and when, at the beginning of the year agricultural prices began to improve reflecting the positive commercial advances between the two powers, the COVID-19 pandemic was present and erased the improvements achieved, plunging wheat, maize, and SB to levels similar to those of 2019. Even in the case of corn, the highest volume contract operated in Chicago fell in April to its lowest value since 2009 However, after reaching these minimum values, the trend in prices was reversed as a result of the production falls in large suppliers and mainly the strong climatic uncertainty in Brazil and Argentina, the peak of demand for food that motivated the quarantines in different countries, along with vigorous Chinese demand aimed at accumulating stocks of agricultural commodities. This has led to Chicago farm contracts not only exceeding the prices recorded at the beginning of the year but reaching multi-year highs. Currently, all-grain prices (both locally and in Chicago) are less than 10% below their 2020 highs and 25% above their annual lows. Furthermore, locally, values have risen more than their peers in the United States.

Part of these gains was also the consequence of the weakening of the dollar against other currencies. The Dollar Index, which measures the value of the US currency in relation to a basket of foreign currencies, reached its maximum for the year in March (relative strengthening of the dollar) while to date it is at an annual minimum (relative weakening). This in part increased the value of commodities since it is relatively cheaper to import in dollars.

Of the selected variables, only the dollar and oil are below their initial value of 2020. In the case of oil, it suffered a sharp drop in its international demand as a result of the spread of COVID-19 that brought coupled with generalized restrictions on transit and trade globally. This event, added to the implications of the futures called “with delivery” when they are close to expiring, caused the price of West Texas Intermediate (WTI) to fall until trading in negative territory for the first time in history.

For its part, gold exhibited a bullish rally in the first months of the year due to international political tensions and, as in the case of agricultural goods futures, the relative weakness of the dollar also pushed the metal up beautifully. In the year, gold reached its all-time high on August 6, largely due to its quality of store of value. Currently, the value of gold is US $ 179 below this maximum, assuming a value of US $ 1,890 per ounce.

In less than two weeks, the year 2020 will be ending and, it will be possible to say that it was a year that developed in a completely unexpected way where the general trend was wide volatility and uncertainty. The following table shows the behaviour of a series of variables selected from January 1 to the first half of December.

In 2020 there was enormous volatility in the agricultural commodity markets. The prices of these products were already very weakened by the intense trade war between the US and China and when at the beginning of the year agricultural prices began to improve reflecting the positive commercial advances between the two powers, the COVID-19 pandemic was present and erased the improvements achieved, plunging wheat, maize, and sb to levels similar to those of 2019. Even in the case of corn, the highest volume contract operated in Chicago fell in April to its lowest value since 2009 However, after reaching these minimum values, the trend in prices was reversed as a result of the production falls in large suppliers and mainly the strong climatic uncertainty in Brazil and Argentina, the peak of demand for food that motivated the quarantines in different countries, along with vigorous Chinese demand aimed at accumulating stocks of agricultural commodities. This has led to Chicago farm contracts not only exceeding the prices recorded at the beginning of the year but reaching multi-year highs. Currently, all-grain prices (both locally and in Chicago) are less than 10% below their 2020 highs and 25% above their annual lows. Furthermore, locally, values have risen more than their peers in the United States.

As for the US stock indices, the S&P and the Dow Jones, both fell due to the impact on economic activity of the coronavirus and their respective annual lows coincide on the date 03/23/2020. From there, the path was one of ascent and, after the presidential elections in the main world power, both indices strengthened until reaching all-time highs at present.

Among the selected local indicators are the dollar (Banco Nación Buyer y Contado Con Liquidación) and the stock indices MERVAL and ROFEX20.

The first group presents different performances, on the one hand, the Buyer Nation Bank Dollar is currently at its maximum, as a result of the “crawling peg” or gradual depreciation scheme applied by the national government to control currency movements. For its part, the Cash Dollar With Settlement (CCL) also showed an increase since the beginning of the year. To graph the above, it is enough to point out that the minimum value was registered on January 3, 2020 and that so far it has increased by 95.66%. However, the maximum of this indicator occurred on October 22 when each CCL dollar reached $ 180.14, to approximate $ 142.54 in mid-December.

Finally, the local stock indices, MERVAL and ROFEX20, coincide on dates of minimums and maximums with their US pairs. The lows were on March 18, while the highs were found on November 27. In addition, they are similar to gold, S&P and Dow Jones since this year’s highs are in turn the historical highs. It should be clarified that the maximums of the local indices correspond to their denomination in Argentine pesos, the situation being different if they were valued in dollars. Currently the MERVAL and the ROFEX20 are between 4% and 5% below the highest historical values in pesos, and between 140% and 150% above the minimum values of this year, which accounts for the great recovery perceived (although the caveat must be made again that nominal variations are measured, and that part of these increases are a consequence of the positive evolution of the exchange rate).