MacroVoices #420 Ole Hansen: Green Shoots in The Commodity Markets
Commodities expert Ole Hansen discusses emerging green shoots across commodity markets in 2024, highlighting breakouts in precious metals, industrial metals, and energy sectors. He explains how cocoa prices have tripled due to supply shortages from West African weather issues, while natural gas appears to be bottoming after producer cuts.
Summary
Ole Hansen, Head of Commodity Strategy at Saxo Bank, provides a comprehensive outlook on commodity markets showing signs of recovery after a prolonged correction since 2022 peaks. The interview covers multiple sectors experiencing upward momentum. In precious metals, gold has broken to new all-time highs driven by massive hedge fund buying (250 tons in two weeks) and strong physical demand from China, though Hansen warns the rally may be premature without accompanying rate cuts. Cocoa has seen extraordinary price action, tripling in the last year due to severe supply shortages from West African producers facing weather challenges, aging trees, and inadequate farmer compensation - creating a market in extreme backwardation with front-month contracts $3000 above next year's prices. The agricultural sector shows a north-south divide where northern hemisphere crops (corn, wheat, soybeans) had good harvests while southern hemisphere soft commodities (coffee, cotton, sugar, cocoa) struggled with weather. Natural gas appears to be bottoming as producers like EQT and Antero announce production cuts to address 35% above-average inventory levels. Industrial metals, particularly copper, are showing strength as Chinese smelters face supply shortages and cut refining capacity, while the energy transition metals sector including lithium shows early signs of recovery after 80% price declines. Hansen emphasizes the importance of backwardation versus contango for commodity investors, explaining how backwardation provides positive roll yields that can significantly enhance returns over time. The interview concludes with Hansen's analysis of crude oil, which has broken above $80 but faces headwinds from high spare capacity, and his outlook for uranium as a long-term bull market despite recent speculation-driven corrections.
About this episode
MacroVoices Erik Townsend & Patrick Ceresna welcome back Saxo Bank, Commodities Chief, Ole Hansen. Erik & Ole will discuss which commodities are hot and what’s driving the rally, from softs to AGS to metals to energy. https://bit.ly/43wIZmn ⚫ Follow Ole on X: @Ole_S_Hansen 🔻Download Big Picture Trading Chartbook: 📈📉: https://bit.ly/3vig2Ox ✅Sign up for a FREE 14-day trial at Big Picture Trading: https://bit.ly/46Ul2FD 🔴 Subscribe to Patrick’s Youtube Channel: https://www.youtube.com/@Patrick_Ceresna 🔴 Subscribe to Erik's Substack: https://eriktownsend.substack.com/ 🔴 Check out Energy Transition Crisis on YouTube: https://www.youtube.com/@EnergyTransitionCrisis1 🔴 Check out Nick's YouTube channel: https://www.youtube.com/c/Optionfinity ✅ Join OptionFinity discord: https://discord.gg/Rvnsv6Y 🔴 Subscribe to Nick’s Medium: https://medium.com/@ngalarnyk Please visit our website https://www.macrovoices.com to register your free account to gain access to supporting materials
Key Insights
- Hansen argues that commodities are showing technical breakouts across multiple sectors after a prolonged correction since 2022 peaks, with momentum starting to attract fresh fund demand
- Gold's rally to new all-time highs was driven by hedge funds buying 250 tons in just two weeks, equivalent to a quarter of annual central bank purchases, despite reduced rate cut expectations
- Cocoa prices have tripled due to severe supply shortages from West African weather problems, aging trees, and a broken price mechanism where farmers don't benefit from higher futures prices
- The cocoa market is experiencing extreme backwardation with front-month contracts trading $3000 above next year's prices, indicating severe near-term supply shortages
- Natural gas appears to be bottoming as major US producers announce production cuts to address inventory levels that are 35% above the five-year average
- Chinese copper smelters are cutting production as treatment charges approach zero due to supply shortages, creating tightness in refined copper markets
- Hansen claims that backwardation provides positive roll yields that can dramatically enhance commodity returns over time, citing examples where actual returns exceeded spot price gains by 16 percentage points
- Agricultural markets show a north-south weather divide where northern hemisphere grains had good harvests while southern hemisphere soft commodities faced severe weather challenges
- Hedge funds are record short on key grain crops (corn, wheat, soybeans) heading into the northern hemisphere growing season, creating potential for short covering rallies
- Energy transition metals like lithium are showing early recovery signs after 80% price declines, with producers cutting back production to rebalance markets
- Hansen argues that Europe is much less vulnerable to natural gas supply disruptions than in 2022 due to increased LNG infrastructure and reduced Russian dependence
- Uranium's recent correction from speculation-driven highs represents a healthy pullback in a multi-decade bull market driven by nuclear power renaissance and supply constraints
Topics
Transcript
This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna. Macro Voices Episode 420 was produced on March 21st, 2024. I'm Eric Townsend. Saxo Bank's Commodities Chief Ola Hansen returns as this week's feature interview guest. Ola sees green shoots across the commodity sector. We'll discuss which commodities are hot and which are not, and what's driving the rally, from softs to ags to metals to energy. I have a special announcement…
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