Cocoa, rice and sugar futures will prove rare gainers in the commodities complex in 2023, with palm oil among the biggest losers, Fitch Solutions said, in briefing highlighting the role of China and the dollar in determining prices.

The analysis group, forecasting prospects for commodity prices next year, said that most “will average lower” in terms of average values compared with those in 2022.

“We remain highly cautious towards prices in 2023,” Fitch said, viewing that “the outlook for the global economy remains grim”, with world real GDP growth forecast slowing to 2.0%, from 3.1% this year.

“Developed markets will be hit hard, with a painful recession in the eurozone as well as a light and short recession in the US,” Fitch said.

“Amid such a clouded global backdrop, physical as well as speculative demand for commodities will be capped.”

‘Buck the trend’

However, commodity prices will remain “elevated” nonetheless, supported by economic recovery in China, the top importer of many raw materials, following the dent to growth this year from its tough anti-Covid restrictions.

Fitch forecast that China’s economy “will buck the trend” and post an acceleration to 5.0% in growth next year, from 3.6% in 2022.

China was particularly important for energy markets, with the analysis group saying that should the country’s “economic rebound in 2023 increase demand for natural gas we could see LNG [liquid natural gas] prices surge”.

The core forecast, nonetheless, was for Henry Hub natural gas prices to average $6.50 per million British thermal units (mBtu) next year, a drop of 7.1% from 2022, with UK NBP prices seen dipping by 10.9% to $34.80mBtu.

Fitch also proposed that the dollar may have already peaked, with the prospect of some decline in the greenback offering support to prices of dollar-denominated assets, in making them more affordable to buyers in other currencies.

‘An outlier’

However, the group’s top among agricultural commodities for 2023 was in fact sterling-denominated cocoa, which it forecast averaging £2.051.80 per tonne, up by 2.6% from the 2022 mean.

Fitch has forecast a second successive world cocoa production shortfall in 2022-23, in part thanks to high fertilizer prices crimping yields, with further deficits seen over the following two seasons.

Rough rice prices were also forecast gaining on a year-average basis, by 2.4% to $17.30 per hundredweight, with Fitch viewing it as “an outlier in terms of global grains markets”.

Prices will be supported by the knock-on effects of “a series of unfavourable weather events in major producing and exporting markets, including China, India, Pakistan compounded in turn by the imposition of an export ban and export levy on different rice varieties in India”.

Ukraine deal pressure

By contrast, Chicago wheat prices were forecast averaging 7.8% lower at $8.60 per bushel – albeit a price well above Friday’s $7.50 per bushel – with corn prices seen easing 4.4% to average $6.60 per bushel.

“We expect the Black Sea Grains Deal, renewed on November 17, to continue facilitating the export of Ukrainian grains to global markets, which will cap any upward price momentum.”

“That said, we expect the global grains market to tighten in 2022-23, marking the second-consecutive year-on-year contraction in global supplies, which we expect will result in average price levels above those seen in the years before the Russia-Ukraine conflict.”

Oilseed prices were seen faring worse, with Chicago soybean prices forecast dipping by 10.3% year on year to $13.00 per bushel, and palm oil prices forecast tumbling by 22% to average $3,800 ringgit per tonne in Kuala Lumpur.

Fitch flagged palm oil’s exposure, as a key biodiesel feedstock, to the global economic slowdown.

Top performers

Prices of cotton, as a key industrial commodity, were also viewed vulnerable to economic malaise, with the average price forecast dipping by 14.6% next year to average 94.00 cents a pound – although that would represent a marked increase from current levels.

Raw sugar, by contrast, was forecast appreciating by 1.1% next year to average 19.0 cents a pound, putting it also among the five commodities seen enjoying a higher price in 2023.

Lead was forecast as the top performer, with growth of 4.7% to $2,250 per tonne, with gold seen gaining by 2.8% to $1,850 per ounce.