December 31 – The holiday mood lingers on Wall Street as traders put a bow on 2024 trading activity. One can almost feel the animal spirits stirring as we prepare to turn the calendar to 2025. The markets will be closed to celebrate the New Year Holiday tomorrow, with trade volume likely remaining light to close out activity on Thursday and Friday as well. It was a record year in 2024 for the stock market, but the results were highly varied for the commodity sector. That said, Wall Street seems anxious to put 2024 behind it and to start 2025, anticipating a pro-business agenda in the White House, although it will come with its challenges as well, including rapidly escalating geopolitical tensions, as well as a national debt problem that is increasingly providing a drag on the U.S. economy.
Stock futures pointed higher overnight, with traders choosing to see the proverbial “glass as half full.” The VIX is trading near 17 this morning, while the dollar index remains strong near 108.2. Yields on 10-year Treasuries are trading near 4.53%, while yields on 2-year Treasuries are trading near 4.23%. Crude oil prices are mixed to firmer after probing to fresh seven-week highs earlier in the session, while the grain and oilseed sector was mostly higher overnight as traders close the books on a bearish 2024.
Geopolitical tensions with China ratcheted higher late on Monday when reports hit the street that Chinese hackers had successfully infiltrated U.S. Treasury Department workstations to steal documents. The Treasury Department was officially notified on December 8 of the hack by a third-party vendor who’s job it was to oversee the department’s cybersecurity. Hackers reportedly accessed the security key used by the third-party vendor to access the files via various Treasury workstations. Details of what was contained on those documents are not available, and China officially denies that it would ever support the hacking of government agencies. As such, we don’t know the level of damage done by this hack into a critical agency that plays a key role in the global financial markets. We may never hear about this again, but we can expect it to be on the list of items to be dealt with as Washington addresses concerns regarding China. It will do little to ease existing tensions, and it can only work to further deteriorate the existing relationship between the two world powers.
Our StoneX commodity tracker shows 5% year-on-year gains for the broader commodity sector, with each sector showing gains to varying degrees over the past year, except for the grain and oilseed sector. That sector saw a bounce over the past several months, but overall it remains down better than 15% on the year. The best performing commodity in 2024 was cocoa, which is up 889% in value following a series of supply threats to global production. That’s followed by orange juice, up 79%, after suffering from hurricane damage and other threats in the past year, with possible freeze threats still ahead. Coffee prices rose by nearly 78% this year, while gold prices were up nearly 19% on the year. Lean hogs rose 16%, while live cattle futures rallied nearly 12% as U.S. protein supplies continued to tighten, but consumer buying remained stronger than expected at current price levels. Crude oil prices traded a $22 per barrel range with significant highs and significant lows, but they ended up roughly 10% on the year because prices were posting a longer-term low a year ago, while gasoline prices ended the year down 2%. The biggest loser of 2024 was soybeans – losing nearly 22% on the year. They were followed by 21% losses for Chicago wheat prices, 19% losses for cotton, 16% losses for soyoil, nearly 15% losses for corn, 12% losses for lumber, and 10% losses for soybean meal. It should be noted that the 15% losses for corn over the past year would have been much greater if not for nearly a $1.00 (98 cents) rally off of August lows, equating to 27% gains over those months.
Bitter cold air is expected to drop down across much of the eastern half of the country next week, possibly bringing freezing temperatures all the way down to the Gulf Coast, and perhaps across portions of Florida as well. The cold air is expected to have a significant impact on cash commodity prices in January. Natural gas prices are rapidly rising in anticipation of the cold air’s arrival, as heating demand will increase dramatically. Ethanol producers typically have their natural gas booked well in advance, so they frequently see profit opportunities in reselling that gas on these cold air rallies, reducing ethanol output to do so. That in turn reduces demand for corn. Feed corn demand rises with cold air events, until / unless it is so cold that animals quit eating. Nonetheless, weight gain recovery eventually requires more feed consumption to make up for the losses during the event. Dryness stress is the concern in South America, with crop stress developing over the southern 25% of Brazil’s soybean belt, while expanding to 40% of Argentina’s belt in the first half of January. Will these risks be enough to threaten global soybean supplies? Probably not, but that’s yet to be determined, and the market may see the risks as an excuse to add risk premium. And then, there are the questions over support for the U.S. liquid biofuel program. In summary, the above suggests that we could see increased volatility in the commodity markets going forward.
