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1. Nigerian Capital Market at Crossroads; Working Towards a New Normal

Commodities Market Review

In the year 2022, after economic activities had returned, the effects of reduced supply for commodities, predominantly food crops have bitten hard. It was estimated by the Food and Agriculture Organization of the United States that between 720 to 811 million people faced hunger in 2020, an increase of about 118 million people that faced hunger the prior year pointing to the fact that the world was still a long way from achieving the sustainable development goal 2 of zero hunger by 2030. According to the world food program, about 135 million people suffer from acute hunger, mainly resulting from issues created by man-made conflicts, climate change, and economic problems. Then Russia invaded Ukraine, an action that resulted in skyrocketing prices of food commodities and energy. 

Soft Commodities

Wheat prices surged from March when the invasion started followed by sugar prices while corn maintained its gradual growth. This invasion coincided with the planting season for some countries causing further disruption to an already strained supply market which had been affected by the renewed global demand from the ease of lockdowns by countries pushing prices up as high as US$1,200 per bushel from US$758 per bushel at the beginning of the year. As countries began adjusting to the realities of the war by the end of the second quarter, the price of wheat started declining gradually but advanced again at the end of the third quarter into the fourth quarter as nations were faced with climate change troubles. This short rally wasn’t enough though to push prices up to the US$800 mark.

Cocoa started the year selling at US$2559 per metric tonne but had fallen to US$2340 per metric tonne by the end of the second quarter. The last quarter witnessed a rise in its price as farmers in top producing countries, Ivory Coast and Ghana, complained about the lack of benefits in growing cocoa. With illegal gold miners in Ghana causing pollution to their land, the threat of underproduction was sounded as acres of farmland were destroyed and trees died off along with the fact that some miners priced these farmers out of the market by paying the off to sell their lands.

Corn, like wheat, advanced when the Russian invasion started. Like wheat which is a major export for both Russia and Ukraine, Ukraine thrives in the export of corn. Corn price movement largely mirrored wheat’s price movement during the year as prices fell and climbed around the same period although having a far better performance at the end of the year. Corn posted a YTD gain of 13.84%.

Sugar demand increased as the year went along, and this was evident in the pricing of sugar which had a 6.71% YTD. As economies began opening properly, demand for sugar increased which was also affected by the price of crude oil, which shot up as a result of the war in Ukraine, since sugar is used in the production of ethanol which is used as a fuel additive which can be used to blend gasoline  (see chart 12 below).

Chart 12: 

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Other commodities like precious metals were equally affected, albeit not only through demand and supply.

Precious Metals

The Yellow Metal, Gold, is a haven generally seen as a hedge against inflation, especially as it has an almost inverse relationship with the dollar. That is, as the purchasing power of the dollar declines, gold value is expected to climb. This has not always been the case but has followed that dynamic more often than not, a case for why it's hailed as such. 

The first half of the year 2022 has presented various challenges to investors as they had to navigate risks arising from higher interest rates, rising inflation, and increasing geopolitical tensions in a year meant to be for economic growth and normalization. After Russia invaded Ukraine, gold prices moved up, crossing the US$ 2000 mark. It traded between US$ 1800 and US$ 2000 from march till June before dropping below US$ 1800 per troy ounce on the 5th of July 2022 as FED aggressive rate hikes drove traders to switch from gold assets to Dollar assets. It had a YTD of 0.67% by the end of the year.

The white metal, Silver, performed better than Gold, posting a YTD gain of 4.25%. Starting the year at US$22.81 per troy ounce, and closing at US$ 24.04 troy ounces

The worst-performing metal among the precious metals is Palladium which posted a negative return of -9.34%. After advancing as high as US$ 2981.9 per troy ounce in the first quarter, it dropped below the US$ 2000 mark in the second quarter and gradually declined before closing the year at US$ 1798 per troy ounce.

Platinum on the other hand was the best-performing metal in the year, posting a YTD gain of 12.26%. It surged in the first quarter due concerns of supply after Russia invaded Ukraine. Russia is the second-largest producer of platinum after South Africa. Strong import volumes from China pushed the price up further, closing the year at US$ 1082.9 per troy ounce (see chart 13 below).

Chart 13:

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AFEX Commodities Performance

The AFEX composite index (ACI) opened at a value of 504.83 points in January 2022, tumbling to 481.02 points in February. It was a green week for grains in the first week of January as demand pressures witnessed continued to put pressure on prices which continued its green streak for the third week in a row. By February, grains like maize, soybean, and sorghum plummeted as a result of low demand.

The crisis between Russia and Ukraine caused a price spike in March as commodities ranging from oil to agricultural products advanced. Prices of some commodities rose reflecting the supply chain disruption of these commodities to the international market. 

Local market activity in August declined as demand for many commodities was low pointing to the period when inventory processors had large inventories of commodities.

By September, reports of flooding in some parts of the country pushed prices of Paddy rice up as many farmers claimed their farms were destroyed and many processors claimed that their stock was washed away by the flood. ACI settled at 455.71 points.

The scarcity of commodities domestically resulted in price increases across grains in October. Key producing states of grains production were seriously affected by the flood incidence which had a significant negative effect on the general food supply.

By December 2022, the ACI had a slight increase closing at 456 points as of December 22nd, 2022. An impressive -0.51% Loss YTD (see chart 14 below).

Chart 14: