Recent decline in commodities is only temporary, JPM says in mid-year outlook

With concerns about economic growth diminishing, J.P. Morgan Global Research says, the recent decline in commodities is only temporary, and commodities would likely be exposed to a confluence of forces, among them weather-related volatility, China’s Third Plenum, and the onset of the Fed’s rate cutting cycle.

Commodity prices surged to new highs at the end of May, with copper, gold (XAUUSD:CUR), cocoa (CC1:COM), and frozen orange juice (JO1:COM) reaching all-time-highs. U.S. natural gas prices pulled back in June following strong gains, on profit taking across the complex amid growing concerns that the U.S. economy was slowing abruptly.

“With fears on economic growth fading, we believe the recent pullback in commodities is just that: a pullback,” JPM noted in its mid-year outlook.

Brokerage’s top long recommendations by sector and in order of preference:

Given the latest sell-off, agricultural commodities like sugar (SB1:COM) and wheat (W_1:COM) move to the top of brokerage’s list of preferred longs, with a projected 30% and 25% return, respectively, by year-end.

After being dropped from its top long trade recommendations at the end of April, Brent oil is back on the list.

Expected inventory draws should be enough to get Brent oil into the high $80s-$90 range by September, a ~10% appreciation sufficient to secure oil a second place in the pecking order, it added.

It also remains “structurally bullish on gold and silver over the medium term and sees the ongoing consolidation in precious prices as a buying opportunity for long-term investors to further accumulate.”

Forecasts an 8-10% upside for gold and silver prices into year-end, on their way to our targeted highs of $2,600/oz and $34/oz, respectively, in 2025.

Lastly, US HH natural gas moves from #1 buy recommendation in April to the bottom of the list for now.

“With weather seemingly max bullish, the market will need to first absorb the impact of increased production and then monitor just how high that production level can get.”

That said, the investment bank remains fundamentally bullish of the complex with the advent of new LNG feedgas demand from the Plaquemines facility in 3Q24, alongside structurally bullish natural gas power generation demand and a balance of summer production average of 103 Bcf/day, JPM added.

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