Commodities remain volatile while USDNGN exchange rate plummets

With geopolitical conflicts continuing and the pressure of high inflation still being felt, the last week has been a turbulent one for the financial markets, particularly natural gas and the US Dollar to Nigerian Naira (USDNGN) exchange rate.

However, other commodities such as sugar, cocoa, and cotton have rallied strongly.

Last week, sugar witnessed an uptick in value driven by concern that the El Niño weather pattern will diminish worldwide sugar output by bringing unfavourable weather conditions.

India, the world’s highest producer and second largest exporter, saw a decline in sugar production due to a lower sugarcane output. In fact, India’s sugar production during the latest season (1^st October 2023 – 15^th January 2024) dropped by 7% to 14.87 million tonnes compared to the period last year. Additionally, the country’s restriction on sugar exports led to the tightening of global supply.

What’s more, cocoa also rallied to the highest level in 44 years following continued supply uncertainty, increasing its value. Ivory Coast, the world’s largest producer of cocoa, experienced seasonal Harmattan wind – dry wind that blows over West Africa from December to March from the Sahara Desert.

These extreme dry winds negatively impacted cocoa bean supplies across the region. Cocoa bean arrival at Ivory Coast ports decreased considerably. In fact, from the latest season (1^st October 2023 to 7^th January 2024) arrival rates dropped by 35.2% Year-over-Year.

In addition to lack of rain, Ghana, the world’s second largest exporter of cocoa, saw a spread of swollen shoot virus in cocoa trees. As a result of these factors, the cocoa yield witnessed a significant drop. The country forecasted 850,000 tonnes of cocoa beans as opposed to the 900,000 tonnes originally predicted.

Elsewhere, cotton grew notably in value. Prices increased due to a seasonal increase in demand ahead of the spring and summer season in the Northern Hemisphere (March–August). In addition to inopportune weather conditions, thousands of imported bales of Afghani cotton are stuck due to the ongoing border dispute with Pakistan, leading to concerns that demand will outpace accessible supply.

Looking at our most falling table* last week, natural gas derailed from its recent rising streak. This follows weather forecasts predicting warmer conditions in late January and early February, leading to an expectation that there will be lighter demand for the commodity. Nevertheless, ongoing geopolitical conflicts continue to play significant role in the volatility of the commodity’s price. We expect to see this reflected in the future rising and falling.

As inflation continues its upward trend and interest rates rise along with it, USDNGN fell in the last week. As a result of dollar scarcity and rising demand for the US dollar, Nigeria’s Naira plummeted to a record low. What’s more, it is likely the Naira will remain in a state of turbulence while the Israel-Hamas war in the Middle East continues, driving inflation higher.