Bad weather, political volatility, and supply chain disruptions have all made 2024 a year to remember for for retailers and suppliers. Nick Peksa reports. This article first appeared in ESM’s November/December 2024 edition.
Let’s start with a phrase familiar to those frequent travellers: ‘Ladies and gentlemen, we are now in our final approach to runway 2025. Please make sure your seatbelt is securely fastened, your seat is in the upright position, and all electronic devices are switched to airplane mode. Cabin crew, please take your seats for landing.’
The flight has been a long one. Looking out of the window, we see that 2024 has been a chaotic year for the global markets.
Commodity prices have been caught in the crosswinds of unpredictable weather, political shifts, and supply chain disruptions.
Whether it was crops devastated by extreme weather or the return of protectionist policies via Donald Trump’s re-election, the ripple effect on prices has been felt far and wide.
Back in January, the theme of Buyer’s Brief was to try and predict what the rest of the year would throw at us.
Dark Skies
As 2024 began, weather forecasts predicted the continued influence of El Niño, with a 60% likelihood of transitioning to ENSO-neutral conditions between April and June.
Historically, El Niño years are followed by even warmer years, so it was expected that 2024 would be the hottest year on record, extending a streak of exceptionally high monthly global mean temperatures.
The World Meteorological Organization reported this to be true. The ongoing El Niño event has brought with it heatwaves, droughts and floods across different parts of the world.
For Europe, this has meant a particularly tough season for some of the Continent’s most important crops.
Wheat, sunflower oil, and corn have all been affected by the dry conditions, especially in countries like France, Spain and Germany.
France, as one of Europe’s top wheat producers, has seen a marked reduction in yield due to a lack of rainfall, pushing prices higher, both within the EU and for global buyers.
Similarly, sunflower oil – a commodity heavily reliant on European production – has faced supply shortages, as yields in Ukraine and parts of the EU have been down, further driving up prices.
Beyond Europe, other major agricultural sectors have also faced challenges due to unpredictable weather patterns.
Cocoa and coffee have both been impacted by extreme temperatures and erratic rainfall, particularly in Brazil and West Africa, two crucial growing regions.
In Ghana and the Ivory Coast, cocoa farmers have already witnessed significant declines in their harvests, leading to record highs on the global markets.
Although a fall in coffee prices was initially anticipated, this did not materialise.
Ongoing weather disruptions in Brazil and Vietnam further reduced coffee yields. Stocks of beans held in ICE warehouses were simply too low to offset the impact of adverse weather.
The skies ahead are looking clearer, as global coffee production for 2024-25 is expected to recover by 7.1 million bags – reaching 176.2 million bags.
This growth is expected to be driven by a continued recovery in Brazil and a rebound in output from Indonesia.
Hopefully, this increased availability will satisfy the marketplace, leading to a stabilisation of price.
The chance of another El Niño emerging in 2025 remains very low, staying below 10% for most of the year.
Fuel Tanks Are Empty
At the start of the year, the global oil market was anticipated to maintain a rather neutral stance, and the expectation for Brent crude prices was that they would remain around $81-83 per barrel.
At the time of writing, the annual average for crude was holding firm, at $81.72. The forecast for Brent crude oil prices in 2025 has been revised down to an average of $78 per barrel.
This adjustment is mainly due to weaker global oil demand, particularly from China.
It was anticipated that China’s growth rate would fall to around 5% in 2024, however, based on a weaker-than-expected performance, it may end up being closer to 4.6%.
Global crude inventories are currently at their lowest levels since January 2017. This, combined with expectations of an oversupplied market in 2025, has led to cautious restocking.
However, rising Middle Eastern tensions may speed up inventory replenishment.
A New Pilot
Then there’s the wild card in the cockpit: Donald Trump. With his election victory, the US could chart a new course in global trade, potentially disrupting the entire system.
His protectionist policies included a plan to introduce a flat tariff on all foreign goods, which could be as high as 20%, rising to 60% for China, and even 100% for countries that move away from using the US dollar – China, Russia, Brazil – although nothing has been finalised yet.
At the time of going to press, Trump said he would place a 25% tariff on all imports from Canada and Mexico, along with an additional 10% on imports from China.
This has the potential to disrupt trade and increase prices on goods ranging from agricultural products to manufactured items. It’s like having a new co-pilot insisting on a detour that could stretch US budgets even further.
The agricultural sector could be facing significant risk from these proposed changes. Countries like Brazil – a major exporter of soybeans and beef – could find themselves struggling to maintain access to the US market under these new tariffs.
If other nations follow suit with protectionist measures, the global food supply chain could become increasingly fragmented, leading to higher prices for food and other agricultural commodities.
UK and European Union farmers could also face challenges if tariffs on their products increase, especially for items like cheese, meats, and olive oil.
Producers in the EU have built their businesses around export relationships with the US, and these new tariffs could undermine their access to one of the largest consumer markets in the world.
Ending Thoughts
With inflation as an unwelcome passenger, 2025 might turn out to be anything but a smooth journey, leaving us all wondering when, or if, we will finally land safely.
The economic outlook appears somewhat less turbulent. EU inflation is expected to ease – the US is another story – driven by falling energy prices and an increase in consumer spending, leading to a more stable economic environment.
There is a belief that most of 2025 will see a return to neutral weather conditions, and that growing conditions and yields will improve.
However, there are some hidden pockets of air that could create some significant problems: rising public debt, wage pressures, and US-China relations.
For more information, contact nick.peksa@cost-insights.co.uk.
