Many of the factors that impacted commodity trade in 2022 will again be factors to start 2023. Some of these may even have more of an impact, especially from the weather front. Others will likely have less of an influence. 

A topic that was at the forefront of the market for 2022 was the Covid restrictions in China. China locked down large volumes of its economy to try and contain Covid from spreading in what the country termed as a “Zero Tolerance Program.” This proved ineffective and caused damage to China’s economy instead. One fall out from this move was a decline in Chinese commodity demand, especially for pork. At the end of 2022 China started to lift the restrictions after several weeks of civil unrest in the country. This did not immediately raise China’s commodity demand, but it did show signs of improving in 2023. 

The global economy on a whole was a major factor for the commodity market in 2022 and we have likely not seen the worst of what may come. Interest rates started to climb during the year in an effort to slow inflation which some countries saw climb to over 20%. Several rate hikes in the United States took place, taking interest rates to their highest levels in recent history. Signals started to be seen that inflation was slowing at the end of the year, but it is still well above where the Federal Reserve would like to see it. As a result, more increases are expected in 2023, even if the hikes are smaller. 

This uncertain economic outlook started to impact commodity demand. Consumers around the world started to shop for cheaper products, including in the United States. This was most evident in the meats where purchases of higher cuts of beef decreased in favor of lower grades. In the global market we had importers that simply had to back away from purchases as they did not have enough credit to secure needs. Commodity demand is likely going to be slow to start in 2023, but long-range indications show things should improve as they year progresses. 

When it comes to demand the United States is seeing a split between the export side and the domestic side. US exports slowed considerably this year as rationing limited importer interest. Stocks to use on corn and soybeans dropped to rationing levels in 2022 and prices spiked as a result. Drought also impacted our exports as low water levels on US rivers hampered commodity movement, especially on the Mississippi. Several times through the year the Mississippi river was closed due to low water levels and even now there are draft restrictions in place. As a result, buyers backed away from the US as a supplier as timely shipments became a concern. 

Domestic demand negated some of these concerns as both US ethanol and soybean crush usage was very high during the year. Margins were quite favorable and gave us interior bids that topped the export market at times. This demand did falter as the year progressed, mainly on ethanol, but was still enough that the loss of exports was not a noticeable factor in the cash market for much of the US. 

South American production will be a factor the United States contends with for the next several months, most likely all marketing year. Brazil is forecast to produce at 30 million metric tons (mmt) more soybeans and 10 mmt more corn this year than last. Argentina has suffered from drought this year but is still expecting to see larger crops as well. This will elevate the volume of competition the US will have in the global market. It will also narrow the window for the US to make what sales it can. Given the size of South American crop estimates those countries may become perpetual exporters. 

Another region of the global market that will be closely monitored is the Black Sea. Ukraine production is going to be down considerably this year due to the ongoing war with Russia. In turn that country will make fewer exports. The question is when we may see production rebound in Ukraine. It is quite likely the country will not see a return to normal until long after the war ends and infrastructure can be repaired, including the country’s export facilities. 

One of the greatest factors that will be monitored going into 2023 will be weather. The La Nina that has affected North and South America for the past few years is finally showing signs of ending. Forecasters believe that by this coming spring the event will be gone, and neutral conditions will follow. This will allow for more normal crops to be raised across the regions. Any indication that the La Nina will not end and we will see a return of risk premium buying in the commodity market. 

One thing that should be expected is a continuation of the market volatility we have seen for the past twelve months to continue well into 2023 and beyond. 

RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is believed to be reliable but is not guaranteed to accuracy or completeness by AgriVisor, LLC. This report is provided for informational purposes only and is not furnished for the purpose of, nor intended to be relied upon for specific trading in commodities herein named.  This is not independent research and is provided as a service.  As such, this is considered a solicitation.