Many commodity prices have been in a slump for most of 2023. Weak economic activity in China gets a large part of the blame, but it’s not the whole story.
Besides economic weakness in China, another very important challenge for commodity markets, is the strength of the U.S. dollar. Commodities are denominated in U.S. dollars, and commodities are often viewed as a hedge against U.S. dollar weakness. So when the dollar is on the rise, as it has been, commodities can have trouble rallying.
The lower price action in agricultural products in 2023 is a classic example of a mix of lower Chinese demand and a strong U.S. dollar, with some weather-related concerns having less impact for now.
Dr. Copper, considered a bellwether for global growth, has been drifting lower too. We note, however, that copper’s weakness probably has more to do with China's weakness than U.S. dollar strength or U.S. economic reliance, since China is such a huge importer copper.
Supply and geopolitics can make a difference, beyond China and the U.S. dollar. During the July-September period, U.S. crude oil bucked the downward trend in commodities and powered upward, only to slump dramatically in early October.
The lift for oil in the summer of 2023 was mostly attributed to production discipline by Saudi Arabia. But then worries about China and potential U.S. weakness due to rising bond yields took it in the other direction, until Middle East political tensions stirred the mix.
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