Commodities hit the skids

"A bitter cocktail of events has come together" for commodities, Mark Hansen of Concord Resources told the Financial Times. For one thing, emerging-market jitters have spilled over into the commodities markets, hitting prices of everything from copper to oil. Traders worry that lower economic growth in emerging markets will cool demand for raw materials.

And no wonder. The World Bank estimates that, over the past two decades, two-thirds of the rise in energy demand, virtually all the increase in metal consumption, and 40% of the jump in food demand stem from only seven countries: Brazil, Indonesia, Mexico, Russia, Turkey, India and China. The latter is the world's biggest user of raw materials. It accounts for 50% of the world's copper and half its steel consumption. Meanwhile, a strong dollar has made commodities even more expensive for buyers who don't use greenbacks.

A bear market in copper

Base metals have already fallen 19% from their peak in April, according to the Bloomberg Industrial Metals index. In August, copper plummeted by over 20% to its lowest level since July 2017. A particular worry has been that protectionism would dampen global growth, especially in China. Oil prices have dipped too. Uncertainty over supply and demand has swung oil prices in both directions this summer, say Neanda Salvaterra and Amrith Ramkumar in The Wall Street Journal. Increased output from major producers in Saudi Arabia and Russia pushed oil prices lower.

European grain prices, by contrast, have surged. "In the background lurks climate change, fears of which have grown with the heat and drought battering Europe's wheat crop this summer," according to The Economist. But many other commodity prices are sagging, including Arabica coffee, which fell below $1 in August, its lowest level in 12 years. Raw sugar was also at a ten-year low. Both commodities have been hit by oversupply from Brazil and the tumbling real, the Brazilian currency, has made them cheaper still in dollar terms.

American corn and soybean prices continue "a long streak of weakness caused mainly by harvests that get more bountiful by the year". The US Department of Agriculture is forecasting a record corn yield this year and the biggest ever harvest of soybeans. "But that is lousy timing" given that China, which has thus far been America's biggest buyer of soybeans, has continued to raise retaliatory tariffs on the crop. So now farmers hope to sell more of their goods to Europe, where soy is a popular ingredient for animal feed, given increasing grain prices. "Optimism flickers from time to time" in commodities, but it's hard to be confident that the worst is priced in yet.