2015: A Year of Rising Commodities Demand?

12/30/2014 7:00 am EST

Focus: COMMODITIES

Chris Haverkamp at Paragon Investments, Inc. highlights how 2014 saw staggering drops in a number of commodity markets and he outlines how analysts are expecting demand in 2015 to grow as a result of investors and traders taking advantage of deep discounts in these sectors.

2014 saw staggering drops in numerous commodities, hurting producers of the raw materials. As a result, analysts are expecting newfound demand to arise in 2015 as bargain hunters and investors take advantage of deep discounts.

Energy Markets in the Pits

Energy markets fell precipitously in 2014, with gasoline, natural gas, and crude oil all at multiyear lows in late December. Prices for these fossil fuels have collapsed due to rapidly increasing global production, led by the United States where new drilling techniques have unleashed a deluge of fuel onto the markets. Meanwhile, this winter has been relatively warm, sapping demand for heating fuels.

Longer-term, it is expected that low prices will force drillers and refineries to cut back on production, thereby boosting prices. At the same time, cheap fuels can stimulate demand by allowing for more driving, flying, and home heating.

As of midday last Friday, crude oil stood at $55.50 per barrel, natural gas at $3.04 per million BTUs, and gasoline futures were worth a mere $1.53 per gallon.

Grains Got a Jump

Record corn and soybean harvests hammered prices to multiyear lows in the fall. Since then, foreign buyers and news of supply shortfalls in countries like Argentina and Russia have helped to boost prices.

With the recent rally, corn and wheat prices have returned to the exact same level as a year ago, making 2014 one of the most volatile but directionless years of trading in memory. As of midday Friday, corn was worth $4.12 per bushel and wheat stood at $6.10.

Cash Cows

The cattle markets were some of 2014’s strongest, as prices rose to all-time highs amid supply shortages. Multiyear droughts in the Great Plains ruined pastures and led to the death of much of the breeding stock, leaving the beef industry unable to quickly rebuild, causing a runaway bull market in cattle. Additionally, a strengthening US economy and high pork prices made consumers willing to pay for increasingly expensive beef, keeping demand high even as price rose.

Only in the past few weeks have prices pulled back as ranchers and traders sold off their profitable cattle holdings. As of last Friday, immature feeder cattle were worth $2.11 per pound, while market-ready live cattle were worth $1.60 per pound.

By Chris Haverkamp of Paragon Investments, Inc.

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