Commodities slumped to a five-year low led by gasoline and agricultural products grown in Brazil, on speculation a slump in the country’s currency will fuel exports.
The Bloomberg Commodity Index dropped 0.6 percent today in London falling to its lowest level since July 2009. Raw sugar futures fell 1.6 percent and soybeans dropped 0.4 percent. Brazil is the biggest exporter of both commodities.
The real has weakened 33 percent against the dollar since Rousseff took office in January 2011 and with his re-election there appears to be little prospect of any significant policy changes in Brazil.
A weak Brazilian currency tends to encourage export sales of products traded in dollars. A weak real makes Brazil more competitive for key commodities such as soybeans, iron ore and soft commodities such as coffee and sugar on the export market.
Some commodity strategists fear we are approaching another 2009 level slump in demand. Raw sugar dropped to 15.99 cents a pound, the lowest since Oct. 2. Soybeans have slumped 24 percent this year on a record harvest in the U.S. West Texas Intermediate crude fell 1.9 percent to $79.44 a barrel, the lowest since June 2012, after a number of banks lowered price forecasts amid concern supplies are outpacing demand. Brent slid 1.8 percent to $84.57 a barrel. Even coffee which has surged 73% this year has fallen back by 9.1% in New York last week, the biggest fall since May on news that the drought in Brazil’s coffee growing regions may be easing and other countries such as Columbia increase output.
All in all commodities don’t appear to be in good shape right now as significant economic growth in most economies is proving difficult to achieve and as a consequence demand for commodities is more sluggish than the market would like.