A Strong Brew
Bulls in arabica coffee, coming off its best year in five, will be watching developments in Brazil, the top producer and exporter. After 2019’s harvest was marred by irregular weather and poor quality, the country’s green bean stockpiles are set to drop to the lowest in more than five decades, and any signs of more production issues may exacerbate the tight supply scenario.
In addition to a forecast world deficit in 2019-2020, technical indicators are strong, with the beans favored by Starbucks Corp. moving above 50- 100- and 200-day moving averages. While traders will be looking for signs of increased output, many growers are still under financial distress, and that may limit resumption of farm investments. Meantime, a further depreciation in the Brazilian real could raise prospects for increased supplies in the years to come.
Headed South
After a tumultuous year, iron ore is expected to slide in 2020. The steelmaking material capped the biggest annual gain in three years in 2019 on a shortage triggered by a dam disaster at Brazil’s Vale SA. Prices, which hit as much as $120 a ton in July, ended the year near $90, while shares of miners such as BHP Group rose. Fortescue Metals Group Ltd.’s stock more than doubled.
As seaborne supply expands this year from Brazil and Australia, the deficit is seen closing, and there’s a chorus of forecasts for prices to weaken. Top producer Australia sees iron ore averaging $63 a ton, and the material is Morgan Stanley’s least-favored commodity. In China, steel demand is expected to fall as economic growth slows, hurting iron ore consumption.
Running a Fever
Unprecedented outbreaks of African swine fever upended the pork trade in 2019, and whether the spread continues will be a key driver for meat markets going forward. The fallout lifted global meat prices to a five-year high and sent pork exports from Europe and elsewhere surging. China’s hog population -- the world’s largest -- has collapsed, and traders will be eyeing whether a recovery in herds comes as quickly as some government officials have pledged.
Outside of Asia, the market will focus on whether the disease strikes any major pork shippers, risking further trade disruption. The virus has moved nearer to Poland’s border with Germany, a key European producer, and officials are stockpiling fences and training boar-sniffing dogs in a bid to ward off the threat. It also remains to be seen by how much China will boost purchases of U.S. pork after the nations reached an initial trade agreement.
All Change!
Climate change and how governments, companies and funds respond will shape investment decisions in 2020 as never before. This year, the amount of new wind and solar power generation capacity will cross the 200-gigawatt threshold, boosting the total to about 1,450 gigawatts, BloombergNEF says. To put that in perspective, that’s just shy of 20% of global installed capacity.
That shift will see renewables close the gap with natural gas as the biggest potential source of electricity behind coal, though their intermittent nature will leave them lagging behind in terms of actual output. The variability will also increase challenges for grids and traditional utilities to keep all the lights on, while pressuring wholesale power prices on gusty or bright days.