THE LOCAL NEWS OF THE MADISON VALLEY, RUBY VALLEY AND SURROUNDING AREAS

COMMODITY INSITE

As low as you can go

Over the past several months I have been touting loudly that inflation has finally arrived and the commodity markets per se were poised to do much better in 2018 and beyond. Few have been as bullish and optimistic about commodities as yours truly. Consider some of my past comments and ramblings.

My newspaper column on March 25, was entitled, “Haunted By Markets: Stick A Fork in Deflation” On June 1, the column titled was, “A Super Cycle Has Arrived.” In my column from June 8, I wrote, “There is no doubt in my mind that the best environment for investing in and speculating with commodities in over a decade is at hand and it will last for years.” On June 22, my column title was, “The Year 2018 Is Similar to 1998.” It was in 1998 that commodities per se carved out a major low and tripled in value over the following seven years. And on July 6, the title to my column was, “Bull Markets Ahead.”

I have been a wild-eyed bull towards commodities since late March and unfortunately, thru and including this week, my forecasts were flat out wrong. I do blame, however, the weakness with commodities on the Trump tariffs and trade war with China that kicked into gear in early March. No longer do supply-demand fundamentals determine prices for the US ag-markets. Values are now set by tweets and press releases coming from the White House, China, Europe or where ever. 

The weakness with the commodity markets has been so swift and severe, Bloomberg News posted a piece entitled, “The Rout in Commodities Can No Longer Be Ignored.” 

Here is the opening paragraph to that article: “Plunge, tumble and rout are overused by the financial media to describe a market in decline, but such superlatives would not be out of place to describe what’s happening to commodities. The Bloomberg Commodity Index of 25 raw materials ranging from oil to copper to cattle dropped as much as 2.80 percent on Wednesday, the most since 2014, before closing at its lowest level since December. That brought the gauge’s decline to 8.88 percent from this year’s peak in late May.”

And second paragraph states the following. “If one thinks of raw materials as a sort of early warning system —  copper is frequently called the metal with an economics Ph.D. because it often tracks the health of the world economy — then commodities are sending an incredibly distressing signal. Their performance is far worse than the relatively modest 1.05 percent drop in the MSCI All Country World Index of equities over the same period, which probably speaks more to the widespread belief among stock investors that leading central banks will stop talking about monetary tightening and continue flooding the world with cash at the first sign that the budding trade war between not only the U.S and China but also between the U.S. and its allies is causing real trouble.”

“There is growing concern among market participants that the trade war will affect the real economy and put the brakes on global economic growth,” Commerzbank analysts, including Carsten Fritsch, said in their daily report.

This week, all commodity markets did a swan dive. Soybean prices hit a new, 10-year low. Copper, a leading indicator for commodities as well as the stock market fell to one year low. Crude oil endured the worst one-day decline in two years, a drop of $3.50 a barrel. Hog prices slumped to new contract lows. And the CRB Index that is to the commodity markets as the Dow Jones is to the equity markets dropped to a four-month low. It has been one ugly week. Actually, it has been an ugly four and a half months ever since the White House embarked on a trade war with China.

But here is a glaring conundrum in light of the collapse with hard assets. At mid-week it was announced that U.S producer prices increased more than expectations in June amid gains in the cost of services and motor vehicles, leading to the biggest annual increase in six and a half years. Thus, as commodity values, hard assets slumped 8.8 percent from the best levels of May, inflationary pressure actually increased.

The Producer Price Index does exclude food and energy. Still, the food and energy markets and commodities per se are poised to move higher to sharply higher into 2019 and beyond. All my work continues to suggest that bull markets will soon evolve when it comes to commodities. In fact, the lows posted this week may have been as low as any commodity will go for some time to come.

Featured: 
Add Article to Front Page Categorized News

More Information

The Madisonian

65 N. MT Hwy 287
Ennis, MT 59729
406-682-7755
www.madisoniannews.com

Cori Koenig, editor: editor@madisoniannews.com
Susanne Hill, billing: s.hill@madisoniannews.com 
Ad orders, inserts, classifieds: connect@madisoniannews.com 
Comment Here