Commodity Outlook & Risks Research Department, Commodities Team 1 November 20 www.imf.org/commodities sbeidasstrom@imf.org Today we are launching the Commodity Outlook and Risks. This new monthly publication presents a financial market-based outlook and risk assessment for selected commodity prices, supplementing the Commodity Market Monthly. With a few exceptions, futures markets suggest that commodity prices are expected to fall or remain flat during the next twelve months. Large declines are expected for soybean meal, soybeans, and rice. Markets broadly seem to suggest downside or balanced price risks, with upside risks appearing more dominant for U.S. natural gas, gasoline, corn, coffee and wheat. Contents. Fan charts (pages 2-3) show historical and forward futures prices (red line), with calculated confidence intervals of +/- 2 standard deviations (in purple/blue). Confidence intervals are derived from prices of options on November 7, 20. Likelihoods of spot prices rising/falling from specified price thresholds occurring at the 3-, 6-, 9- and -month forward (or closest available) horizons for each commodity are shown in tabular form (pages 4-5). In addition to price thresholds, the probability of each commodity spot price rising/falling by a certain percentage is shown (pages 6-7). Relevant contract specifications for each commodity are also shown (page 8). Approach. It has been shown that commodity futures yield unbiased forecasts of spot prices (Reichsfeld and Roache, 20). 2 However, the evidence is mixed since the mid-2000s for some commodities (Chinn and Coibion, 20), 3 with the forecast accuracy and predictive content not significantly more accurate than simple no-change forecasts (Baumeister and Kilian, 20). 4 Despite their limitations, futures remain informative since they capture the forward looking expectations of market participants dominated by commercial entities. Risk-neutral probability density functions of expected option prices (Cheng, 20) 5 are employed to assess market perceptions of risks including tail risks. This assessment excludes the materialization of unanticipated shocks. Outlook. Markets expect most commodity prices to remain flat or fall over the next months. Oil prices are expected to stabilize at levels reached during late October 20 albeit with a gradual and mild downward trend on expectations of growing supplies. Soybean meal prices show the biggest drop, while soybeans and rice also fall all on more abundant supply prospects. Copper prices are expected to be flat, on rising supplies and some stock overhang, and gold prices are flat on balanced macro news and softer physical demand. s of U.S. natural gas and those of coffee, corn and wheat are expected to rise on stronger demand, partly induced by lower prices. 6 Risks. Market perceptions of WTI falling below $90 and Brent below $0 ( months forward) is about 50 percent, with downside risks seeming slightly more pronounced than upside. Tail risks of these crude benchmark prices rising above $0 or $0 appear low, at just over 8 percent, respectively. risks for selected metals and agricultural commodities seem mostly to the downside or balanced. However, upside price risks appear evident for U.S. natural gas and gasoline prices, corn, coffee, and wheat. 1 Prepared by Samya Beidas-Strom, Akito Matsumoto, Daniel Rivera Greenwood, and Marina Rousset. 2 D. Reichsfeld and S. K. Roache, 20, Do Commodity Help Forecast Spot s? IMF Working Paper WP//254. 3 M. D. Chinn and O. Coibion, 20, The Predictive Content of Commodity, The Journal of Markets, Vol. 00, No. 0, 1 38. 4 C. Baumeister and L. Kilian, 20, What Central Bankers Need to Know About Forecasting Oil s, IMF Economic Review, forthcoming. 5 K. C. Cheng, 20, A New Framework To Estimate the Risk-Neutral Probability Density Functions Embedded in s, IMF WP//181. 6 For recent developments see the Commodity Market Monthly: www.imf.org/external/np/res/commod/pdf/monthly/.pdf 1
Selected Commodities Market Outlook and Risks WTI Crude Oil Brent Crude Oil (U.S. dollars a barrel) (U.S. dollars a barrel) 160 160 0 0 0 0 0 0 80 80 60 60 40 Natural Gas 40 Gasoline (U.S. dollars an MMBtu) 8 (U.S. cents a gallon) 400 7 350 6 300 5 4 250 3 200 2 150 1 0 0 Gold Copper (U.S. cents a pound) (U.S. dollars a troy ounce) 550 20 1900 500 450 1700 400 1500 350 00 300 10 250 900 200 700 2
Selected Commodities Market Outlook and Risks (concluded) Corn Coffee (U.S. cents a bushel) 00 (U.S. cents a pound) 300 900 250 800 700 200 600 500 150 400 300 0 200 50 0 Rough Rice Wheat (U.S. cents a hundredweight) 22 (U.S. cents a bushel) 00 20 10 18 00 900 16 800 700 600 500 8 400 Soybean Meal Soybeans (U.S. cents a bushel) 2000 (U.S. dollars a short ton) 650 1800 550 1600 450 00 350 00 250 00 150 800 600 50 3
-based s WTI Crude Oil (probabilities in percent; prices in U.S. dollars a barrel) s 3 6 9 s 3 6 9 < 50 0.0 0.1 0.8 0.4 < 60 0.0 0.3 0.8 0.3 < 60 0.1 0.9 2.7 3.5 < 70 0.1 1.1 2.3 2.9 < 70 0.5 3.1 7.1.4 < 80 0.7 3.7 8.2.5 < 80 3.4.9 20.2 31.4 < 90 5.0 15.7 24.0 28.3 < 90 27.4 38.1 45.1 52.1 < 0 34.7 43.2 48.0 49.6 > 0 24.4 29.1 28.9 29.7 > 1 21.1 27.9 29.6 31.4 > 1 3.8 9.9.3 16.4 > 0 3.5.1.0 17.1 > 0 0.9 3.5 5.2 8.4 > 0 0.8 3.4 6.1 8.6 > 0 0.3 1.5 2.4 4.0 > 0 0.3 1.3 2.5 3.9 > 0 0.1 0.8 1.3 1.8 > 150 0.1 0.6 1.1 1.7 > 150 0.0 0.4 0.8 0.8 > 160 0.0 0.3 0.6 0.7 U.S. Natural Gas (probabilities in percent; prices in U.S. dollars an MMBtu) s 3 6 9 s 3 6 9 < 2.50 1.2.4 8.9 9.6 < 1.50 0.0 0.1 0.4 2.6 < 3.00.4 31.9 26.0 25.9 < 1.75 0.2 0.8 2.4 6.7 < 3.50 46.7 52.7 48.4 46.7 < 2.00 2.3 3.8 7.4 15.2 > 4.00 21.4 29.9 32.0 34.7 < 2.25.1.9 17.3 32.6 > 4.50 5.9 17.5 18.0 20.9 < 2.50 49.1 26.2 35.8 56.6 > 5.00 1.4 9.7 9.6.1 > 2.75 15.2 46.1 39.6 23.2 > 5.50 0.3 5.2 5.0 7.0 > 3.00 3.7 19.3 19.3.5 > 6.00 0.1 2.8 2.7 4.1 > 3.25 0.9 6.0 8.2 6.0 > 6.50 0.0 1.5 1.4 2.4 > 3.50 0.2 1.8 3.5 3.4 > 7.00 0.0 0.8 0.8 1.5 > 3.75 0.0 0.6 1.5 2.1 > 7.50 0.0 0.4 0.5 0.9 > 4.00 0.0 0.2 0.7 1.3 Copper (probabilities in percent; prices in U.S. dollars a pound) s Brent Crude Oil (probabilities in percent; prices in U.S. dollars a barrel) Gasoline (probabilities in percent; prices in U.S. dollars a gallon) Gold (probabilities in percent; prices in U.S. dollars a troy ounce) 3 6 9 s 3 6 9 < 1.5 0.0 0.0 0.0 0.0 < 900 0.0 1.6 1.3 3.3 < 2.0 0.0 0.0 0.2 1.0 < 00 0.0 4.4 5.7 9.9 < 2.5 0.3 1.2 3.3.1 < 10 0.8.3 15.9 20.9 < 3.0 16.0 26.0 28.5 37.3 < 00.4 27.5 32.5 36.0 > 3.5 16.2 23.8 27.7 33.1 < 00 49.3 51.5 52.0 52.2 > 4.0 0.8 3.1 6.0.9 > 00 15.9 27.0 30.9 33.5 > 4.5 0.0 0.2 1.0 4.8 > 1500 2.4.9 17.6 21.7 > 5.0 0.0 0.0 0.2 1.4 > 1600 0.2 6.3 9.3.4 > 5.5 0.0 0.0 0.1 0.4 > 1700 0.0 3.2 4.4 7.8 > 6.0 0.0 0.0 0.0 0.1 > 1800 0.0 1.7 1.9 4.3 > 6.5 0.0 0.0 0.0 0.0 > 1900 0.0 1.0 0.8 2.3 4
-based s (concluded) Corn (probabilities in percent; prices in U.S. dollars a bushel) s 3 6 9 s 3 6 9 < 2.5 0.3 0.1 0.5.7 < 0.6 0.0 0.1 0.5 0.6 < 3.0 3.7 1.6 3.2 21.0 < 0.7 0.3 1.1 1.8 3.0 < 3.5 16.0.6.9 32.8 < 0.8 2.9 5.8 6.3 8.8 < 4.0 38.4 32.1 31.7 45.0 < 0.9.9 17.6 16.6 19.0 > 4.5 37.8 41.6 46.5 44.0 < 1.0 35.2 35.4 32.1 32.2 > 5.0 19.4 20.3 27.6 34.4 > 1.1 39.2 44.3 49.8 53.1 > 5.5 8.8 8.4 15.0 26.6 > 1.2 19.6 27.3 33.8 39.5 > 6.0 3.5 2.9 7.6 20.2 > 1.3 8.2 15.2 21.4 28.0 > 6.5 1.3 0.9 3.7 15.2 > 1.4 2.9 7.7.8 18.9 > 7.0 0.5 0.3 1.8.5 > 1.5 0.9 3.6 7.7.4 > 7.5 0.2 0.1 0.9 8.6 > 1.6 0.3 1.6 4.7 7.8 Rough Rice (probabilities in percent; prices in U.S. dollars a hundredweight) s 3 6 9 s 3 6 9 < 0.08 0.0 0.0 0.0 0.0 < 4 0.0 0.1 0.4 0.0 < 0. 0.0 0.0 0.0 0.2 < 5 0.8 2.6 6.4 1.3 < 0. 0.1 0.1 4.5 5.3 < 6 19.6 23.6 26.8 15.4 < 0..2 8.6 39.3 39.9 > 7 29.3 33.6 44.4 49.4 > 0.16 38.1 43.5 16.1 17.3 > 8 4.2 9.1 21.2 18.1 > 0.18 4.5 6.5 1.8 3.2 > 9 0.5 2.3 8.2 4.3 > 0.20 0.2 0.4 0.1 0.8 > 0.1 0.7 2.8 0.8 > 0.22 0.0 0.0 0.0 0.2 > 0.1 0.2 0.9 0.1 > 0.24 0.0 0.0 0.0 0.1 > 0.0 0.0 0.2 0.0 > 0.26 0.0 0.0 0.0 0.0 > 0.0 0.0 0.1 0.0 > 0.28 0.0 0.0 0.0 0.0 > 0.0 0.0 0.0 0.0 Soybeans (probabilities in percent; prices in U.S. dollars a bushel) s Coffee (probabilities in percent; prices in U.S. dollars a pound) Wheat (probabilities in percent; prices in U.S. dollars a bushel) Soybean Meal (probabilities in percent; prices in U.S. dollars a short ton) 3 6 9 s 3 6 9 < 8 0.1 0.4 1.0 2.5 < 200 0.0 0.1 0.2 0.5 < 9 0.4 1.2 3.4 8.8 < 250 0.4 2.3 3.3 6.8 < 1.4 5.3.7 22.4 < 300 6.4.2 17.4 28.6 < 8.5 19.1 26.9 43.2 < 350 29.1 38.2 42.6 57.9 < 33.3 42.7 49.1 63.9 < 400 62.2 64.8 68.4 81.0 > 30.5 31.5 29.3 19.8 > 450.6 16.6.6 7.2 > 8.9.1.8.1 > 500 4.2 6.6 5.8 2.3 > 15 1.8 5.0 6.7 4.8 > 550 1.0 2.4 2.1 0.7 > 16 0.4 1.6 3.0 2.3 > 600 0.2 0.8 0.7 0.2 > 17 0.1 0.5 1.5 1.1 > 650 0.0 0.2 0.2 0.0 > 18 0.1 0.2 0.7 0.6 > 700 0.0 0.1 0.1 0.0 5
-based Probabilities of Changes (in percent) 3 6 9 3 6 9-50% 0.0 0.1 0.5 0.2-50% 0.0 0.1 0.3 0.0-30% 0.2 1.9 4.8 8.4-30% 0.2 1.3 3.0 4.1 -% 9.9 22.1 31.0 41.3 -% 9.5 22.1 30.3 34.2 +%.8 19.9 21.3 24.0 +%.0 20.4 23.5 25.9 +30% 0.6 2.8 4.2 7.0 +30% 0.5 2.2 4.2 6.3 +50% 0.1 0.7 1.2 1.6 +50% 0.1 0.5 0.8 1.1 +0% 0.0 0.0 0.1 0.0 +0% 0.0 0.0 0.1 0.0 3 6 9 3 6 9-50% 0.0 1.1 0.5 0.7-50% 0.0 0.0 0.0 0.7-30% 0.9.4 8.1 8.8-30% 0.2 0.8 2.4 6.7 -% 22.6 38.9 33.3 32.7 -%.1.9 17.3 32.6 +% 27.9 33.8 36.4 38.9 +% 15.2 46.1 39.6 23.2 +30% 4.7 16.0 16.3 19.2 +30% 0.9 6.0 8.2 6.0 +50% 0.6 6.9 6.7 8.9 +50% 0.0 0.6 1.5 2.1 +0% 0.0 0.8 0.8 1.4 +0% 0.0 0.0 0.0 0.2 WTI Crude Oil U.S. Natural Gas Copper Brent Crude Oil Gasoline 3 6 9 3 6 9-50% 0.0 0.0 0.0 0.0-50% 0.0 0.0 0.0 0.0-30% 0.0 0.1 0.9 4.5-30% 0.0 1.9 1.7 4.1 -% 9.5 18.9 22.0 32.3 -% 7.7 22.9 28.3 32.4 +%.7 18.6 22.8 29.6 +% 8.3 20.5 25.1 28.5 +30% 0.2 0.9 2.7 8.8 +30% 0.0 3.2 4.4 7.8 +50% 0.0 0.0 0.3 2.0 +50% 0.0 0.7 0.5 1.6 +0% 0.0 0.0 0.0 0.0 +0% 0.0 0.0 0.0 0.0 Gold 6
-based Probabilities of Changes (concluded) (in percent) 3 6 9 3 6 9-50% 0.0 0.0 0.1 4.9-50% 0.0 0.0 0.2 0.1-30% 2.9 1.2 2.6 19.6-30% 0.6 1.9 2.5 4.1 -% 27.8 21.3 22.6 39.7 -% 20.2 23.2 21.4 23.2 +% 32.5 35.5 41.3 41.4 +% 30.0 36.6 42.7 47.2 +30% 9.3 8.9 15.7 27.0 +30% 4.9.8 16.5 23.0 +50% 2.0 1.5 4.9 17.0 +50% 0.4 2.3 5.7 9.5 +0% 0.0 0.0 0.2 5.1 +0% 0.0 0.0 1.0 0.7 3 6 9 3 6 9-50% 0.0 0.0 0.0 0.0-50% 0.0 0.0 0.0 0.0-30% 0.0 0.0 0.6 1.1-30% 0.2 0.7 2.4 0.2 -%.0.2 42.3 42.8 -%.5 18.9 23.3.2 +%.0 15.6 4.6 6.1 +% 21.9 27.1 39.5 42.7 +30% 0.1 0.2 0.1 0.6 +30% 1.4 4.6.7 9.5 +50% 0.0 0.0 0.0 0.1 +50% 0.2 0.9 3.5 1.1 +0% 0.0 0.0 0.0 0.0 +0% 0.0 0.0 0.1 0.0 Corn Rough Rice Soybeans Coffee Wheat Soybean Meal 3 6 9 3 6 9-50% 0.0 0.1 0.1 0.4-50% 0.0 0.1 0.2 0.5-30% 0.4 1.1 3.2 8.2-30% 2.7 8.3.7 19.0 -% 18.7 30.4 38.0 54.2 -% 37.6 45.4 49.8 65.0 +% 7.8.9.8 9.4 +% 16.7 18.4 16.2 8.2 +30% 0.2 0.8 1.9 1.5 +30% 2.1 4.1 3.5 1.3 +50% 0.0 0.1 0.4 0.3 +50% 0.2 0.7 0.6 0.2 +0% 0.0 0.0 0.0 0.0 +0% 0.0 0.0 0.0 0.0 7
Commodity Derivative Contract Specifications Commodity Contract Physical Characteristics Contract Size Pricing Unit Months Traded Light sweet crude oil 1,000 barrels U.S. dollars per barrel Brent crude oil ICE Europe One crude oil futures contract of 1,000 barrels Consecutive months up to and including February 2020 WTI crude oil New York Light sweet crude oil 1,000 barrels U.S. dollars per barrel One crude oil futures contract of 1,000 barrels Consecutive months are listed for the current year and the next five years; in addition, the Jun and Dec contract months are listed beyond the sixth year. Natural Gas New York Natural gas delivered at Henry Hub, LA,000 MMBtu U.S. dollars per MMBtu One natural gas futures contract of,000 MMBtu Consecutive months for the current year plus the next twelve full calendar years. Gasoline Gold New York New York Harbor RBOB 42,000 gallons U.S. cents per gallon Gold (a minimum of 995 fineness) One gasoline futures contract of 42,000 gallons 0 troy ounces One COMEX Gold futures contract U.S. dollars per troy ounce Consecutive months for 36 months Current calendar month; the next two calendar months; any Feb, Apr, Aug, and Oct falling within a 23-month period; and any Jun and Dec falling within a 72-month period beginning with the current month. Corn Coffee Rough rice ICE Yellow corn grade #2 5,000 bushels (7 MT) U.S. cents per bushel Arabica coffee from 19 countries of origin U.S. #2 long grain rough rice with a total milling yield of 65%+ One corn futures contract (of a specified month) of 5,000 bushels 37,500 lbs U.S. cents per pound One coffee futures contract (of a specified month) of 37,500 lbs 2,000 hundredweights (CWT) One rough rice futures contract of 2,000 hundredweights (CWT) U.S. cents per hundredweight Mar, May, Jul, Sep, Dec. The monthly option contract exercises into the nearby futures contract. Mar, May, Jul, Sep, Dec. The monthly option contract exercises into the nearby futures contract. Jan, Mar, May, Jul, Sep, Nov. The monthly option contract exercises into the nearby futures contract. Wheat Soybean meal #2 soft red winter wheat 5,000 bushels (6 MT) U.S. cents per bushel Meal with minimum protein of 48% One Wheat futures contract (of a specified month) of 5,000 bushels 0 short tons U.S. dollars per ton One soybean meal futures contract (of a specified month) of 0 short tons Mar, May, July, Sep, Dec. The monthly option contract exercises into the nearby futures contract. Jan, Mar, May, Jul, Aug, Sep, Oct, Dec. The monthly option contract exercises into the nearby futures contract. Soybeans Yellow soybean grade #2 5,000 bushels (6 MT) U.S. cents per bushel One soybean futures contract (of a specified month) of 5,000 bushels Jan, Mar, May, Jul, Aug, Sep, Nov. The monthly option contract exercises into the nearby futures contract. Sources: Board of Trade, ICE, Bloomberg, L.P. 8