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A 2023 commodity outlook

A 2023 commodity outlook

With 2022 about to make its exit, we need to focus on the year ahead.  

By Andrew Joseph has its version of the Old Farmer’s Almanac in the younger personification of Moe Agostino, our Risk Management Chief Commodity Strategist.

When he’s not venturing into the fields to get a feel of how the crops are performing, he’s producing weekly outlooks on global commodities.

Mostly because he doesn’t respond in cryptic quatrains like Nostradamus, Agostino’s outlooks are more accurate as he examines up-to-date geopolitics, delves into weather analysis, and explores technologies to provide a best-guess prediction.

Here is how he believes the 2023 outlook for commodities will play out.

“Let’s look at the big picture macro picture, and talk about interest rates and inflation because that has been on everybody's mind,” explained Agostino. “In 2023, everybody is expecting a recession because the US fed and other central banks—including Canada and across the world—had been raising rates to crush inflation.”

In the US, “Inflation has come off from the highs in August (2022) and some think that by Q3 of 2023 things should be back to normal.” In Canada, he pointed out, inflation rates were at 6.8 percent recently, down slightly from the previous month at 6.9 percent.

But, he warned that because the US fed has remained hawkish—the rates will stay higher for longer, which may slow down the rate of inflation decline. As such, some believe that the inflation rates will not begin to come down until 2024.

Keep in mind, he noted, that the view of many in the stock market, is that inflation rates would come down by Q3 of 2023. As such, the markets have struggled to gain any traction—it goes up and then comes back down.

“There is still some concern about Q4 earnings, but I don't think there will be a fourth-quarter earnings recession,” Agostino stated. “I know that companies are laying off people, but it's the fluff that they're laying off (from the hires in the last 10 years when they did so well). This is mostly regarding the US, but you could put Canada in the mix as well.”


Calling the current economic phase “the recession that never comes,” Agostino explained, noting that people have been worrying about the recession since June of 2022. He calls it as such because the effects of it are not as impactful as other recessions. He believes that “global consumers are a little bit more resilient and wealthier than they have been in past recessions."

“This one (recession) is unlike the others,” he continued. “It’s more of a service recession than a goods recession.”

He reiterated: “The first half of 2023 is going to be critical. A lot of folks are suggesting there's going to be a ton of layoffs in the new year once we get past Christmas. But, I don’t know if it's really going to impact us much.

“What’s compounding the US fed, is the labour market—it remains quite strong. It's moderated but remains strong, and I think that's probably because of covid-related issues.”


Regarding labour issues—the service recession—companies are still having difficulty in filling positions. “The other problem in the US has been that wages have offset the inflation.

“Wages are up about 5.1 percent, so it kind of offsets some of it to a degree.”

Agostino reiterated a mantra familiar to those who regularly read his work: “For most farmers, the key was locking in those interest rates on a fixed rate. They should have locked in those rates a couple of years ago when they were a lot lower now that the variables have caught up with the fixed.”

But, he said the end is approaching as far as the interest rate cycle increases go. “To me, I think we're in the 8th or 9th inning of increases. I think we're close to the terminal rate where interest rates peak. We won’t hit the 10 percent type of stuff as we did in the 1970s or 80s.”


For some of the inputs that farmers need on their farms in 2023, like crude oil or diesel fuel, he commented that economists have been discussing the possibility of lower prices.

“The problem is that the US is trying to replace some of the oil reserves that they depleted, and they're buying between the 65 and 70 and it's creating a short-term floor. I thought we could maybe get down to 65, but we got to 70, and now back to 80.

“Crude is complicated because you've got the EU banning Russian oil and [on December 22, 2022] I'm hearing that Russia is retaliating by cutting production by five to seven percent—which is about 500,000 to 700,000 barrels,” Agostino explained. “So remember as you go into 2023, if the demand from China— which has been missing in action—increases as they reopen for business and introduce more demand—about a million-plus more barrels to the balance sheet while Russia reduces production, that’s a bullish scenario for crude. And crude could easily come back to $100 bucks.”

Agostino said that he was hoping for lower prices by the year's end which would give the farming community “the opportunity to lock in a lower diesel fuel price… but I'm going to be patient here,” he said. “But you know if they do get an opportunity where this thing for some reason gets weighed down by global recession fears, then they should take advantage of that.

“Again, we're trying to lock in a lower input cost, so that we can make more money on the grain side as we go into 2023.”


The other big input for farmers, is fertilizer.

Fertilizer prices have been coming down since the peak in the spring of 2022 largely because of softer demand from US farmers.

“The US farmer is, I think, trying to manage risks by applying half [the fertilizer] of what they normally would in the Fall, and then I think they're going to apply the rest in the Spring just to try the manage the price risk hoping that that price continues to fall in the Spring.

“I think that the demand from these global importers is going to increase as we hit 2023, and for that reason, I think the price is going to come back.

“I also think the price of corn is going to continue to rally into ’23 because of very tight inventory stocks, and trying to buy acres,” continued Agostino. “I also think South America is going to have a production hiccup, and because of those reasons I think the pricing fertilizer will stabilize and go back up.”

Agostino stated that Argentina is way too dry right now, even though it does continue to get the odd rainfall. “But it's inconsistent. It's hit and miss, and it's not doing the trick. At some point, this third consecutive La Nina is going to probably reduce production by as much as 30- to 50 percent.”

He said that a comparison could be in 2008 or 09, but said that this current La Nina is a lot stronger.

Although it’s still a long growing season, Agostino noted that as we go into January, “you start to cut production because there’s just not enough moisture for this stuff to come back.”

Other areas impacted include southern Brazil. While Brazil may have continued its record growing season, southern Brazil experienced similar levels of dryness that affected Argentina.

“In some areas like Rio Grande do Sul, and some of the larger areas down in the south, are going to get their production cut by as much another 30 to 50 percent as it gets drier.”

He said that with these La Nina cycles, if it persists and continues to last through February or March, then the longer it goes into the growing season, “the more that La Nina shuts off the moisture.”

“And while it may not bring the heat, it will dry things out,” he continued. “I’m thinking that up next is Mato Grosso in central Brazil.”

While Agostino acknowledged that the weather has been less than ideal for Argentina and parts of Brazil, he feels there will be a slight production hiccup.

“But how big—we’ll just have to wait and see,” he said.


The dryness issues affecting some of the larger producers of South America will have a trickle-down effect impacting the North American market.

“It will affect the beans first, because they are up next in South America, while the larger corn crop doesn’t get planted till Q2—so we still have some time.”

But there’s also a drought in North America. Some two-thirds of western prairies complained of drought, while many farmers in southwestern Ontario and the US had the same problem—until we got the pre-Christmas snowstorm.

“This storm (December 22,23,24) is probably providing some moisture,” noted Agostino, “but the problem with this moisture is the ground is frozen. So where does it go? So we’ll see what happens.”


A key element to Agostino’s weather and crop prognosis is the 90-year cycle.

After being wiped out by the 1873 Panic and looking to determine the causes of fluctuations in the markets, in 1885, American farmer Samuel Benner (1832-1913) discovered that weather cycles were the cause (regarding crops), publishing his results in his book, Benner’s Prophecies.

Going back to data collected just before the 1800s, Benner determined the impact of the dry/wet cycle of weather and then postulated through the year 2000 just what its impact would be.

Science tells us that the 89-year Benner Cycle/drought cycle is accurate +/- to one year.

Agostino has been praising the virtues of the drought cycle for the past four years.

“This is the fourth year in a six-year drought cycle that is expected to peak in 2025,” he noted. “If we go back to 1934 and do our homework, in 1934 Mother Nature provided an 80 percent trendline yield on the US corn.

“In other words, for US corn in 2023, expect it to drop to the 140s.

“If you go to a 140 from the current 172, then we’ve got problems.”

Of course, he did preface the commentary by stating that everything is still dependent on the whims of Mother Nature—that nothing is set in stone.


While he agreed that South America could be a factor in how things play out in 2023, Agostino was more bullish on the reopening of the Chinese markets. “I think that’s a positive for the global economy.”

He said that China is targeting an eight percent growth, “So that could also be bullish for demands for soybeans.”

He continued: “Soybean demand is up bout four percent in the US right now, compared to last year. Corn demand is down about 48 percent—that's a big concern, but it's still early and if South America has a production hiccup, then that export program could come back.

He said that the markets have been ignoring the whole invasion of Ukraine by Russia.

“However, I should note that as you get into 2023, a lot of the Ukraine farmers will not have access to inputs like diesel, or fertilizers—all the equipment that they need to plant crops.”

Because of this, Agostino pointed out that in 2023, Ukraine crops, whether corn or soybeans, will get cut in half (again), including wheat.

“Even though they are shipping out Ukraine grain, those crops get smaller as the years go by [because the war is limiting access to necessary farmer inputs],” he said.

If you are paying attention, it means less available wheat (and corn and beans) for a hungry world.

While Australia had a big record crop, Agostino pointed out that a lot of it was impacted by flooding—about one-third of the crop.

While Russia has a large wheat crop, in 2023 it will be reduced.

“I think this severe winter polar vortex we're getting [in December of 2022] is going to do a lot of damage to the winter wheat that went into dormancy in the US. Without any snow blankets, I think you're going to get a lot of winter kill, and a lot of abandonment of acres—that's going to play into wheat as we get into 2023.

“I still think that wheat prices could add a couple of bucks going into 2020.”


Agostino explained that as long as we can avoid a recession, stock markets can look forward to 2024 when rates start to come down.

“Remember—never fight the Fed,” he exclaimed. “The Fed is increasing interest rates. PEs (private equity) will contract and then vice versa. So if you can catch when they start to lower interest rates, never fight that.

“I think stock markets go higher, and at some point, you'll get to new record highs.

“Again, try to manage some of those inputs a little cheaper, if you can. If you get the opportunity, lock those in so we can make more money on the grain side.“

I still think overall that I'm very bullish on beans as you go into 2023—because the drought in South America will cause a production hiccup, and because the US farmer wants plant four to five percent more corn acres.”

He pointed to drought, flooding, and urbanization taking away acres as contributing factors to the commodity pricing of soybeans.

“The farmers also told me that they planted more soft red winter wheat in the eastern corn belt so what's left in the bag are fewer bean acres.”

And then there’s the ongoing drought per the Cycle.

“My weather guys are telling me that the eastern corn belt is going to finally experience that hot dry weather that the western corn belt experienced over the past two or three years,” revealed Agostino. “We’ll see if that happens.”

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