Commodities bounce back and attract investor interest
The price of raw materials such as coffee, cocoa or sugar has risen by up to 10% in recent weeks after falling by 15-30% at the height of the coronavirus pandemic. Investors have regained interest in investing in these securities on the stock markets, but these products are facing a period of uncertainty due to the advance of the pathogen in the harvesting countries and speculation on the markets.
Analysts point out that supply-side constraints and the prospect of a recovering economy boosting consumer demand may encourage higher commodity prices. Cocoa futures in New York have risen by 17% in the last month to $2,488 per metric ton and coffee futures have risen by 14% to $1.12 per pound.
"Countries such as Vietnam and Brazil have not yet managed to control the virus and there are fears that supply will decrease as contagion accelerates," explained Joshua Graves, head of market strategy at commodities consulting firm RJO Futures, in statements to The Wall Street Journal. Large suppliers such as Brazil and India are among the areas most affected by the virus today. The lack of control of the pandemic could affect the level of manufacturing they produce. In the case of Brazil, which is the world's leading coffee and sugar product, it is 59 million bags of coffee and 647 million metric tons of crushed sugar cane.
India, on the other hand, produces approximately 350 million 480-pound bales of cotton, according to data handled by the U.S. Department of Agriculture and reported by the Wall Street Journal. The current outlook suggests that many investors are currently anticipating that supply constraints will collide with significant demand from nations during their recovery, which could further boost futures prices for these commodities.
"Coffee prices are skyrocketing due to the tensions in its supply chain imposed by the pandemic. That could coincide with increased consumption of coffee by the homebound, for example, and despite falling sales at companies like Starbucks and Dunkin' Donuts," Investing.com commodities analyst Barani Krishnan told the Wall Street Journal. The current weakness of the dollar is also pushing up the prices of these products and making it more affordable for importing nations to acquire commodities quoted in this currency.
Raw material producing nations have suffered in all their rawness from the consequences of the pandemic. Honduras saw its exports fall by over 50% in the first half of the year. Cocoa producers have faced losses of about 25% from the coronavirus in February and are now trading at about $2,500, the lowest level since December 2018, according to IG analyst Diego Morín. The two main coffee producers, Colombia and Ecuador, are now suffering the worst of the pandemic with an increase in deaths and infections. However, in Ghana and Côte d'Ivoire, which account for about 55% of total coffee production, they have managed to stabilize the number of infections.
