2016 Commodity Outlook: El Niño To Shake Things Up?

| November 27, 2015

2016 Commodity Outlook: Will These Oversold Assets Reverse Course?

In recent weeks, we’ve been discussing what’s in store for commodities in 2016.  After a disastrous 2015, investors are searching for signs of a bottom in assets like crude oil, gold, corn, and coffee.

Let’s pick up right where we left off…

In the first part of this 2016 commodity outlook series, we discussed oil, natural gas, gold, and silver.

While there’s certainly an oversupply of energy commodities at the moment, I suspect we’ll see a bullish shift in market structure in 2016.

As for precious metals, not only are fundamentals and sentiment still overwhelmingly bearish, but the technical trend is still solidly to the downside.  Until inflation becomes an issue, or the Federal Reserve backtracks on their plan to raise interest rates, precious metals will likely stay under bearish pressure.

As you can see, it’s a mixed bag when it comes to the world’s most widely traded commodities.

What about lesser-known assets?

First of all, let me point out that very few commodities escaped the 2015 wipeout unscathed.  Only cocoa, orange juice, and cotton are turning in positive performance since the start of the year.

That leaves a lot of commodities down in the dumps…

Take coffee, which is down 31% year-to-date.  With the luscious bean trading at multi-decade lows near $1.20 a pound, investors are wondering if an uptrend will ever return to this market.

Their questions may soon be answered…

Analysts at the International Coffee Organization foresee production cutbacks coming from several major producing countries.  As a result, even more emphasis will be placed on Brazil, the world’s largest coffee producer.

While it’s tough to say if Brazil will be able to pick up the slack in the next production cycle, I can tell you this…

The price of coffee is quite oversold on a long-term basis.  That fact increases the odds of a 2016 rally, should weather related worries actually come to fruition.

To get an idea of what I’m talking about, look to the sugar market.   The commodity is seeing a substantial price upturn in recent weeks due to similar technical and fundamental market factors.

That leaves us with grains…

All three of the major grain markets- corn, soybeans, and wheat- are trading at multi-year lows thanks to abundant global supplies.

It’s becoming quite clear farmers are getting darn good at what they do.  Thanks to modern technology, they’re producing remarkable quantities of grains in record time.

As a result, global grain stocks are teeming with inventory.

Therefore, it’s not surprising to see corn and wheat trading at their lowest prices since the 2009 financial crisis.

Is there any hope for corn and soybean bulls in 2016?

As of right now, it’s not looking so good.  Thanks to one of the strongest El Niños ever recorded developing in the Pacific Ocean, it’s likely these two commodities stay subdued in 2016.

After all, the disruptive weather pattern typically brings well-timed rainfall to the US plains.  The situation will likely contribute to another abundant corn and soybean harvest next year.

What about wheat?

While El Niño provides the US with ample rain, the opposite happens in Australia.   The continent suffers higher temperatures and lack of rainfall.  Since Australia is one of the world’s largest wheat producers, an output downturn could provide support for the commodity in 2016.

The same goes for cotton…

El Niño induced drought in India, the world’s second largest producer of the commodity behind China, tends to support prices.  Given the multi-year flat line in cotton prices, cotton bulls will welcome any disruptive force sending prices higher.

To sum it all up…

There’s still plenty of uncertainty in store for commodities in 2016.  Shaky global economic growth, mixed with a strong US Dollar, will be a force to reckon with, just as it is in 2015.

But that’s not to say there won’t be bullish opportunities in hard assets.

This year’s El Niño is shaping up to be one of the largest on record.  As a result, many soft and grain commodities could see price gains as the weather pattern alters production.

In case you’re unaware, these are exactly the types of opportunities we focus on in the Commodity ETF Alert.

This bi-monthly service keys you in on the commodity-focused asset with the most profit potential.  Each month’s recommendation is in a carefully selected commodity ETF or commodity producing company.

With a subscription costing a mere $8.25 a month ($99/year), it’s one of the least expensive ways to keep abreast of commodity trends and profit opportunities.

I hope you’ll join us!

Until Next Time,

Justin Bennett
Commodity Trading Research

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.

Tags: , , , , , , , ,

Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

Comments are closed.