“Mayhem” on the world commodity markets: agricultural crisis, soft options and phew!

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Agricultural crisis

In the weeks following the Russian invasion, West Midlands dairy farmer Ed Hemming slaughtered 26 cows, Sam Chambers told The Sunday Times – a tenth of his herd. The unplanned logging was a sad but simple economic decision caused by “the chaos in global commodity markets”. As Hemming’s bills for fertilizer and fuel needed to sustain his herd “nearly doubled overnight”, he reports that “the price of cull cows has skyrocketed”, due to high demand meat from McDonald’s and other outlets. “I deplete my herd to quickly generate cash to cover bills.

Soft options

Should you try trading soft (or cultivated) commodities like grains? Investing directly — for example, through an exchange-traded fund (ETF) that tracks prices — is best left to “sophisticated investors,” David Rodeck and Benjamin Curry said on Forbes Advisor. Since market prices can rise and fall quickly, you need a high risk tolerance to “absorb short-term losses in pursuit of long-term gains.” A safer option is to consult a managed agricultural fund. Another is to look at stocks that benefit, directly or indirectly, from higher agricultural prices. It worked for me, said Ian Cowie in the Sunday Times. I bought Archer Daniels Midland (ADM) – one of the world’s largest agricultural commodity distributors – in 2016 at $42/share. The stock’s value has now doubled to around $85. Another good bet was tractor maker Deere (DE), whose price rose from $194 last August to $388 last week.

Phew!

For proof of how quickly sentiment can change in commodity markets, just look at this week’s “vicious selling” in energy and metals, Dominic Frisby told Moneyweek.com. Oil fell from a high of $140 a barrel last week to nearly $100 on Wednesday, taking with it gold, palladium, copper, aluminum and iron ore. “Don’t try to make sense of it.” The fundamental argument for higher metal prices remains: “Even without this war, many years of underinvestment have led to supply shortages”. But the speculative spikes created by “panic and frenzy” have now given way to “washout”. The only question now is where “prices find their bottom”.

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