As 2024 draws to a close, cocoa (CC=F) and coffee (KC=F) have once again emerged as the top performers in the commodities market, driven by a global supply shortfall, while coal lagged behind. As we step into 2025, all eyes are on how the commodity landscape will evolve.

Investors are increasingly integrating commodities into their global portfolios because they offer diversification, serve as an inflation hedge, and help reduce volatility—a sentiment echoed by industry experts.

Commodities are typically divided into two groups: hard and soft. Hard commodities include energy and metals such as aluminum (EDP=F), copper (HG=F), gold (GC=F), nickel (^SPGSIK), silver (SI=F), and platinum (PL=F). In contrast, soft commodities primarily consist of agricultural products like wheat (KET=F), cotton (CT=F), cocoa, coffee, sugar (SB=F), and soybeans (ZL=F). By combining both types in their strategies, investors can better shield their portfolios from market swings.

For those with a sweet tooth, the news isn’t pleasant. Cocoa prices nearly tripled over the past year, far outpacing the gains of other commodities. By December, cocoa hit a record high of $12,931 per metric ton in New York, fueled by concerns over a fourth consecutive season of supply shortages in West Africa, exacerbated by dry weather.

“The softs sector, led by cocoa and coffee, has been the clear winner amid adverse weather in key growing regions, underscoring the price risks when these products are produced in limited geographic areas,” explained Ole Hansen, head of commodity strategy at Saxo Bank.

Top cocoa producers like Côte d'Ivoire and Ghana have experienced significant crop losses due to a mix of adverse weather, bean diseases, smuggling, and the repurposing of plantations for illegal gold mining. While there is hope for an improved crop in the 2024/25 season, cocoa prices are expected to remain elevated in the medium term—potentially stabilizing around $6,000 per ton once the market balances.

These rising prices are likely to ripple through the chocolate industry, pushing up confectionery costs in 2025. “The global cocoa balance for 2024/25 looked more neutral until recent declines in pod counts across West Africa and unexpectedly strong demand emerged. Cocoa grindings, a key demand indicator, were only down 4% year-over-year through 2023/24,” noted Tracey Allen, an agricultural commodities strategist at JP Morgan.

Coffee also performed exceptionally in 2024, with prices reaching an all-time high of $349.58 per pound in December. Like cocoa, this surge was spurred by challenging weather in major coffee-producing regions such as Vietnam and Brazil. Additionally, increasing coffee consumption in key markets like China has further strained supply chains.

In the realm of precious metals, both gold and silver enjoyed robust gains of over 25% in 2024. Analysts project that these trends could continue into 2025, largely influenced by potential US Federal Reserve rate cuts and evolving policy shifts. “Gold is our standout for 2025,” said Warren Patterson, head of commodity research at ING, noting that strong central bank purchases are expected to underpin demand.

Natural gas (NG=F) also rallied from mid-December 2024, driven by cold weather and geopolitical tensions. The recent suspension of Russian gas flows to several European countries on New Year’s Day has added uncertainty to the market. As long as these disruptions persist, and with forecasts of colder winters in the US and Asia, gas prices are likely to stay elevated, according to Citi.

In contrast, coal was the poorest performer in 2024, mainly due to slower economic growth in China. Similarly, demand for bulk metals weakened as China grappled with a property crisis and subdued consumer spending.

Oil ended 2024 on a downbeat note, with Brent crude (BZ=F) closing at $74.64 per barrel—a 3% decline. The International Energy Agency forecasts that global oil demand growth in 2025 will be less than one million barrels per day, a significant slowdown compared to the two-million-barrel-per-day increase seen in 2023. The Commonwealth Bank of Australia further predicts that Brent prices could drop to around $70 per barrel in 2025, driven by increased supply from non-OPEC+ countries outpacing global consumption.

Copper, essential for electric vehicle manufacturing and power grid development, may also face downward pressure after reaching record highs in 2024 amid a global energy transition. BMI analysts have warned that any slowdown in these transition efforts—possibly linked to policy shifts—could dampen the “green sentiment” that has supported copper prices.

Global sugar supplies are expected to hit a six-year low by early 2025, as drought in Brazil, the world’s largest exporter, severely impacts production, according to the Czarnikow Group. This reduction in supply is likely to push prices higher.

Geopolitical factors continue to play an unpredictable role, with policies—especially those concerning Iran and Russia—potentially reshaping the supply dynamics for key commodities in 2025.

Ultimately, the future of the commodities market will depend on a complex interplay of weather patterns, economic growth, and political decisions. As 2025 unfolds, market participants will be watching closely, with cocoa, coffee, and gold poised to potentially repeat their strong performances from last year.