Is there a new commodity super-cycle? It does not matter. A recovery cycle in a global economy flush with cash has been enough to take the main commodity index to returns beyond the SPY equity index for 2021. In a constrained real economy with high liquidity, money will flow first to financial assets, but with economic recoveries expected to be robust, the demand for commodities has strengthened. However, which commodities will rise from here is still variable.
In April, the big winners were core agriculture markets, corn, wheat, and soybeans. This jump is a little early given planting periods, but increased demand and dry conditions have excited speculative long buying with export demand expected to be strong. Prices for corn are approaching the dramatic 2011 levels.
Corn prices are at 2011 levels and we still have a lot of weather uncertainty.
Soybean prices are also at multi-year highs.
It has been reported that USDA agriculture exports were the second highest on record in 2020; the highest export year was in 2014. It may be even higher this year if China meets purchasing estimates from our China-US trade agreement. Adverse weather in South America coupled with mixed expectations for conditions in the US has kept speculative interest strong.
The BCOM index is in strong backwardation, the highest we have seen in decades so holding long commodity indices is attractive even if there is no strong higher price move .
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