MORGAN STANLEY: Here's What 15 Major Commodities Will Do For The Next Two Years

gold mine

Photo: Railways of Australia

Morgan Stanley has recently called for the return of the U.S. dollar.In his new report to clients, Morgan Stanley’s Adam Longson updates the firm’s global commodities projections with this in mind.

As you’ll see, it’s not quite as simple as gold taking a hit.

Almost all commodities are expected to get more expensive as long as the global recovery picks up steam.

But every commodity will also be impacted by its own supply and demand dynamics.

Gold prices will continue to go up.

Projected 2013 price:
$1,773/oz

Projected 2014 price:
$1,845 /oz

Gold tends to move inversely to the USD. But there are periods in which that relationship can temporarily break down. The recent strengthening in the USD trade weighted index has not been accompanied by a downside breakout in gold, suggesting we may be entering another period of disengagement.

Source: Morgan Stanley

Oil will rise as the global economy heats up.

Projected 2013 crude price:
$109/bbl

Projected 2013 Brent price:
$123/bbl

Projected 2014 Brent price:
$118.5/bbl

More robust economic growth in 2013 -- indicated by a stronger USD -- will mean stronger oil demand. That will put pressure on an already tight global oil balance. Demand growth may even break out of the tepid range the oil markets have seen since 2008, MS says.

Source: Morgan Stanley

Natural gas prices will be pressured by supply buildups.

Projected 2013 price:
$3.73/mmBTU

Projected 2014 price:
N/A

MS is bearish short-term on natural gas prices owing to large build-ups, but the market should tighten as this inventory is drawn down on coal-to-gas switching.

Source: Morgan Stanley

Corn prices will remain elevated short-term after last summer's wipe out.

Projected 2013 price:
$8.47/bu

Inventories remain precariously low and US demand has not yet been adequately rationed. But a return to anything resembling normal weather could yield record acreage, putting pressure on prices.

Source: Morgan Stanley

Soybean prices will spike on demand and rising South American costs.

Projected 2013 price:
$16.53/bu

Projected 2014 price:
$14.50/bu

South America's soy crop has suffered from poor weather. Without additional South American soybean acreage, trend global demand growth of 4% would pull western hemisphere soybean stocks to their lowest in four years.

Source: Morgan Stanley

Silver prices will remain elevated on strong investor demand.

Projected 2013 price:
$34/oz

Projected 2014 price:
$35/oz

Investment flows will help offset the next three years' 2.5% compound annual growth rate in mine supply.

Source: Morgan Stanley

Platinum supplies are tight.

Projected 2013 price:
$1,733/oz

Projected 2014 price:
$1,785/oz

South African supply issues have shrunk surpluses and industrial demand will continue to firm.

Source: Morgan Stanley

Wheat's exposure to dry weather could be offset by flagging demand.

Projected 2013 price:
$9.15/bu

Projected 2014 price:
$7.30/bu

Wheat historically trades at a premium to corn, so while dry weather could affect yield, demand may resist elevated prices and leave stocks relatively full.

Source: Morgan Stanley

Copper inventories remain low.

Projected 2013 price:
$8,755/MT

Projected 2014 price:
$8,200/MT

Global copper inventory remains well below average. Decent demand will keep the supply/demand balance tight.

Source: Morgan Stanley

Zinc prices will begin to edge higher after a six-year slump.

Projected 2013 price:
$2,237/MT

Projected 2014 price:
$2,300/MT

After six consecutive years of global surplus, MS forecasts a small but directionally important shift in the global zinc market to deficit conditions because of slowdowns in mine and smelter growth.

Source: Morgan Stanley

Live cattle demand weakness could offset higher feed costs.

Projected 2013 price:
$1.25/lb

Slaughter rates have slowed, hinting at weaker U.S. beef demand. That would offset spiking cornfeed costs.

Source: Morgan Stanley

Lean hog prices could also suffer from flagging demand.

Projected 2013 price:
$1.04/lb

Similar to cattle, high feed prices have begun to cut demand. But supplies could fall enough to support elevated prices.

Source: Morgan Stanley

aluminium prices will climb despite large output.

Projected 2013 price:
$2,244/MT

Projected 2014 price:
$2,300/MT

aluminium is uniquely insulated from its own supply boom thanks to the low interest rate environment, and a large percentage of the market is levered.

Source: Morgan Stanley

Coffee prices will increase with the global recovery.

2013 forward curve projection:
$1.43/lb

2014 forward curve projection:
$1.52/lb

Coffee remains susceptible to GDP cycles, but as long as the current trend is upward, prices will rise.

Source: Morgan Stanley

Sugar prices will stay down on strong crop yield.

Projected 2013 price:
$0.19/lb

Projected 2014 price:
$0.20/lb

MS projects a global surplus in 2012/13. Larger-than-expected production out of Brazil could push supplies even higher.

Source: Morgan Stanley

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