For a year now, I have been convinced that we are in the middle of a commodities supercycle. The reason is simple. Since last September, the value of virtually all commodities has improved significantly.
The reasons for the winnings are open to discussion. But the facts remain unchallenged. All commodity markets have rebounded strongly over the past year.
But after the last few weeks, I am now convinced that the United States and the world are in the early stages of a commodities supercycle that will last another 10 years.
I am not alone with such a thought. Jeff Currie, global head of commodities research at Goldman Sachs, said on Bloomberg TV this week: “This is just the first round of a multi-year, potentially decade-long commodities supercycle.”
To a large extent, its bullish argument is based on a forecast for crude oil prices to hit $ 90 a barrel. The crude market is currently trading around $ 75 a barrel.
Historically, crude oil is itself a leading indicator of the commodity market. So if crude continues to rise, it may also pull other commodity markets up.
In my book “Haunted By Markets,” in a chapter called “The Three Biggest Markets,” I said, “For years, the three most influential markets of all are corn, crude oil and bonds. . Each can have a powerful influence in a related market and each can, under the right circumstances, have an impact on the economy as a whole.
When forecasting grain prices, the most reliable tool is the inventory-to-use ratio, or final supply versus demand. Simply put: the higher the ratio, the better the world is supplied with this product. The smaller the ratio, the more supplies the world has.
In the United States and for high protein wheat, the ratio is the lowest in history, which in theory is quite bullish. And corn tends to go with wheat.
As for the bond market, over the past week prices have fallen dramatically amid fears of rising inflation, the Fed’s reduction in its stimulus measures and the possibility separate increase in interest rates in early 2022.
Above all, bonds fear inflation. If crude and grains are heading higher, bonds are heading lower.
This week, oat prices approached a few cents to a new all-time high. This week, cotton prices hit $ 104, a 10-year high. This week, crude oil prices hit a three-year high.
This week, Minneapolis wheat came down to pennies a level not seen since 2012. Natural gas, or fertilizer, hit a seven-year high. A week at least.
Some recent headlines suggesting that food is still on the rise, even though grocery store prices are now at their highest level in 50 years. From YahooNews: “Global food costs may skyrocket as China faces a tough harvest. From Bloomberg News: “The country that makes breakfast for the world is in the grip of fire, frost and drought.”
Of DailyMail.com: “Children born in 2021 will experience an average of seven times as many heat waves, twice as many forest fires and nearly three times as many droughts as their grandparents, a new study warned.” Of FarmProgress.com: “Food prices are about to increase with fertilizers at their highest for years. “
The last commodities supercycle began in the early 2000s and was driven by emerging markets such as China, Brazil, Russia, and India. Commodity prices at the time continued to rise until crude oil peaked in 2008. However, since the pandemic low of April 2020, commodities, on their own, have outperformed the latest supercycle. .
It looks like we are indeed in the early stages of a supercycle that will last another decade. However, the key characteristic of a supercycle is not so much the speed or level of price increase as the length of time that prices continue to rise. I guess a decade.
The key to success for ranchers, farmers or agricultural speculators is marketing. This is when to buy. When to sell. When to sit tight. It’s a matter of timing.
While we’re in the early stages of a commodities supercycle that will last another decade, I can’t stress how important it is to hone your marketing skills. In the coming decade, it’s all about marketing.
Not too long ago, The Economist published an article titled “As Food Prices Soar, Large-Scale Farming Is Having A Great Time.” How long is that going to last? ”Don’t allow large-scale agriculture to have a field day by itself.
Brush up on your marketing skills. Be mentally and financially prepared for the further course of the supercycle that has a decade to go.
Take the time to check merchandiseinsite.com. I would love to work with you in the dynamic times ahead.