Selling pressure continues in commodity market

Agricultural commodity prices increase amid Russia-Ukraine war, unfavorable weather conditions

Burhan Sansarlioglu   | 16.05.2022
Selling pressure continues in commodity market


The selling pressure in the commodity market continued for weeks, amid geopolitical risk and Fed’s “hawkish” policies.

Although the commodity market was dominated by geopolitical risks and rallies in March, the fact that the world's leading central banks, especially the Fed, started to raise interest rates first increased the volatility in the commodity market and then made the downward pressures on commodity prices.

As pricing problems raised concerns about economic activity, negative forecasts for demand have become more dominant.

Strong selling pressure continued to dominate the commodity market last week.

With the inflation figures in the US exceeding expectations, the demand for the US dollar increased and the prices of commodities, especially precious metals, fell sharply.

The US annual inflation rose 0.3% on a monthly basis and 8.3% on a yearly basis in April.

Concerns that the pandemic measures in China may cause a recession in the global economy are also increasing.

The dollar index, which saw over 105 last week, remained at its highest level in 20 years.

The price of an ounce of gold, which saw its lowest level since February with $1,799.23, ended the week with a decrease of 3.8%.

Silver, which saw its lowest level since July 2020 with $20.46, also lost 5.6%. Palladium fell 5.4% and platinum 2.1% last week.

Analysts said that the price of an ounce of gold fell on the expectation that the Fed may fail to fight inflation and that more "hawkish" policies may be required.

There were also hard sales in metals last week, as copper fell 2.7%, aluminum 2.4%, zinc 7.1% and lead 7.8%.

Analysts said the weak recovery in European economies and rising energy costs are reducing demand for metals.

Significant decreases were also observed in energy commodities, with Brent oil 2.2% and natural gas 5.2%.

Interest rate hike expectations, inflation concerns, the rise in the US dollar and oil stocks led to decline in Brent oil prices.

Agricultural commodities

Despite the selling pressure in the commodity market, the upward trend in agricultural commodities was dominant.

Wheat traded on the Chicago Mercantile Exchange rose 6.2%, rice 2.2% and soybeans 1.1%, while corn lost 0.4%.

Cotton rose 1.3% and coffee 1.6%, while sugar fell 2.7% and cacao 0.9%.

While numerous developments from the Russia-Ukraine war to unfavorable weather conditions have adversely affected world wheat production, a forecast announced in the US has further raised concerns.

According to the forecast of the US Department of Agriculture, production in Ukraine, one of the world's largest wheat producers, will fall by a third compared to last year.

Meanwhile, droughts, floods and heatwaves are affecting wheat production from the US to France and India.

Wheat starts week with strong rise

The price of wheat increased 5.59% on the first trading day of the week.

India's export ban decision continues to affect the wheat market. The country had banned the export of wheat due to the risk of food insecurity.

Zafer Ergezen, futures and commodity markets expert, told Anadolu Agency that the government in India partially banned wheat exports to control the rising domestic prices.

He said that agricultural commodity prices rose on concerns about the uncertainties stemming from the war between Russia and Ukraine.

Pointing to the decline in corn prices, Ergezen said: "Despite the Russia-Ukraine war, there is an increase in production estimates."

He said it is expected that the pandemic-related closures in the Far East will increase the demand for rice.

About cotton, Ergezen said: "The expectation of a decrease in global cotton stocks led to an increase in prices."

"However, the ongoing purchases from China also increased prices," he said.

* Writing by Gokhan Ergocun

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