Crop and other commodity prices, including gold, copper and iron, have fallen partly due to a tumble in China’s stock market
Worrisome questions are hanging over world markets and making it hard for crops and other commodities to rally.
Prices will probably continue to languish until those questions are answered or stop worrying markets, some analysts say.
“I don’t think there’s enough catalyst for everything to rebound,” said FarmLead founder Brennan Turner.
It means any summer and early fall rallies in the grain markets are likely to be short-lived phenomena.
“When you see two or three days in a row of prices going higher, that’s a sell signal, in my opinion,” Turner said.
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Crop prices are well below the highs of recent years. Wheat has suffered a prolonged sell-off, and canola recently gave back some of its impressive early summer gains sparked by drought and stronger soybean values, taking it back beneath the 2011-13 rally levels.
There are crop-specific factors that explain much of the weakness in crop futures, but other factors are also sucking the life out of the commodities markets.
Crops can rally on their own fundamental supply and demand factors, but the amount they move can be limited by weakness in other commodities, analysts say.
Crude oil prices were less than $50 per barrel July 31, almost back to the lows hit during the 2008-09 market meltdown.
Gold is at five-year lows and copper, a bellwether for industrial prospects, is at six-year lows.
Barclays Capital, a leading commodities markets research firm, expects no quick or major price rebound of those leading commodities while China’s economy and markets are weak.
“We think gold also faces several structural head winds and maintain our bearish view on the metal,” said a July 27 Barclays research report.
Barclays thinks copper could bounce higher, but only because prices have sold off so much that it now looks cheap. The metal could experience a modest recovery if China’s economy hits projected growth targets or exceeds them.
However, Barclays notes that any weakening in China would knock copper demand further down.
China accounts for almost half of global copper demand, 70 percent of iron ore consumption and competes with India to be the biggest gold consumer.
China’s economy is seen growing at seven percent this year, the slowest in a quarter of a century.
The uncertainty over China and its ongoing economic slowdown and recent stock market sharp tumble is important to Turner, who thinks commodities, including crops, need a positive demand growth outlook to substantially rally.
“China is the big factor,” said Turner. “It is putting pressure on the grains.”
Currency issues come into play as well, with many expecting the U.S. Federal Reserve to begin boosting interest rates as early as September.
If that happens, the U.S. dollar should strengthen compared to other currencies, which also has the effect of weakening U.S. dollar denominated commodity prices.
The sell-offs in commodities have been huge in terms of lost value, but Turner thinks the cascade downward might be finishing.
“Are we at the bottom of the downturn? It’s hard to say,” he said.
“I’d say we’re more likely to trade sideways than we are to go lower.”
