Introduction
Last week, global commodity markets provided a clear snapshot of how the growth of the world economy continues to navigate between uncertainty and oversupply. While precious metals shone as a safe haven amidst financial volatility, grain prices fell due to abundant harvests and signs of international demand fatigue.
Global Factors Influencing Commodity Prices
The prices of commodities responded to three global factors: persistent geopolitical tensions, particularly in Eastern Europe; rising logistics and energy costs fueling inflation; and expectations regarding the Federal Reserve’s monetary policy. There is an 85% anticipation of a 25 basis points interest rate cut at the September 17 meeting, surpassing the 80% mentioned at the start of this article.
Geopolitical Tensions
The possibility of interest rate cuts in the United States and the decline in Treasury bond yields weakened the US dollar by 0.16%. This boosted gold demand as investors awaited meetings between US President Donald Trump, Ukrainian President Volodymyr Zelenskiy, and European leaders to discuss a peace agreement with Russia.
Inflation and Monetary Policy
Rising logistics and energy costs have fueled inflation, impacting commodity prices. Anticipation of the Federal Reserve’s monetary policy, with an 85% expectation of a 25 basis points interest rate cut at the September 17 meeting, has influenced market behavior.
Precious Metals vs. Grains: A Tale of Two Markets
Precious metals, historically considered safe-haven assets, have benefited from an environment where investors seek security. Gold, which does not generate interest and is considered a safe asset during uncertain periods, tends to perform well in low-interest-rate environments. This year, the price of gold has risen by 18.94%.
In contrast, grains in the Chicago market experienced a week of ups and downs. Corn prices fell by 1.14%, while wheat prices increased by 1.28%. Year-to-date, corn has lost 17.80%, and wheat has dropped by 7.91%. Abundant harvests in the United States, Brazil, and Argentina have created downward pressure on grain prices.
USDA’s August WASDE Report
The US Department of Agriculture’s (USDA) August report on global supply and demand (WASDE) indicated that corn yields, planted area, and production for the 2025/2026 crop cycle would exceed previous estimates and trade expectations. Meanwhile, wheat end-stock levels remained low, despite trade expectations of a slight increase.
Demand-Side Factors
China, the world’s largest grain importer, has reduced its imports amidst domestic economic slowdown. This decrease in demand has left Latin American producers with high inventory levels and narrowing margins.
Implications for Mexico
The silver lining is that oversupply and price declines could benefit Mexico’s food and livestock industry by reducing input costs, as Mexico imports large volumes of US corn and soybeans. A currency exchange rate below 19.00 pesos per dollar, along with the expected Fed rate cut, could further lower agricultural import costs. However, this may also negatively impact Mexican exporters.
Key Questions and Answers
- Will the current trend continue? In the short term, precious metals may continue to rise if the Fed implements rate cuts and uncertainty persists. Grain prices, however, depend on more volatile factors like weather, trade decisions, and the economic and demand recovery in Asia.
- What should investors, importers, and exporters do? This environment requires caution and thorough analysis based on individual objectives. In case of further price declines, strategies such as forward buying could be considered. To protect margins against sudden price changes, trading futures and options on corn or wheat at the Chicago Board of Trade (CBOT) is advisable.
