On June 5, 2018, nearly a year ago, my weekly column in this newspaper was entitled, “A Super Cycle Has Arrived.” I wrote. “My work is screaming loudly that a new super cycle for commodities has returned. Wikipedia defines a commodity super cycle as such: ‘The 2000s commodities boom or the commodities super cycle was the rise, and fall, of many physical commodity prices — such as those of food, oil, metals, chemicals, fuels and the like — during the early 21st century, 2000 to 2014, following the Great Commodities Depression of the 1980s and 1990s.’”
But I was wrong. Over the following eight months commodities as measured by the CRB Index moved lower into December 2018.
However, a number of major institutions have started to embrace my ideas from last June about a new super cycle. Hopefully, they will be accurate with their forecasts as the year moves along.
Thanks to the recent strength being seen with commodities, per se, hopes are indeed rising that a new super cycle is once more emerging. From Business Insider entitled “How China Could Launch Super Cycle for Food” come these ideas from a strategist at Wells Fargo:
- Wells Fargo says that China’s huge investments in infrastructure drove a 12-year commodities boom and that in the future its demand for food could lead to a similar boom in other commodities.
- John LaForge, a strategist, says that in the next few years the prices of food crops like corn are likely to surge as Chinese food consumption increases and the country imports more food components. He says demand could endure through several global market rises and recessions.
- To meet that surge in demand, he says, China will need to ramp up its already huge imports of food. That could end a long stretch of flat or declining food-commodity prices and weak returns for related commodities.
- “Food commodities could very well lead the next commodity bull super-cycle,” La Forge said. “Commodity prices move in much longer cycles than stocks usually do: They’ll climb for 10 to 15 years at a time and then go into downturns that last about as long.”
- The “super-cycle” term means those rallies don’t necessarily end even when the global economy goes into a slowdown or recession, so they last through multiple economic cycles. In his estimation, commodity prices have been in a bear market since 2011.
- The reason Mr. La Forge is predicting a global rally is that China is unlikely to ever be able to grow enough food to meet its needs. If demand rises, it will have to buy far more food than it does now. He added that India, the second-most populous country, would also probably ramp up food imports.
Not that long ago, Goldman Sachs made this prediction: “We believe the macro backdrop for commodities is as good as we have seen in years.”
Getting back to my column from a year ago, “A Super Cycle Has Arrived,” I also wrote, “In a super cycle, environment markets tend to rise far higher and drop far lower than pre-existing trading ranges. There also is a tendency for new all-time historic high prices to be carved out. For example, in the past year, lumber prices have doubled in value and in the process posted new historic highs. If a super cycle is now at hand, other commodity markets are poised for dramatically higher levels, as well.”
Moving forward, the most bullish fundamental for the U.S. agriculture markets is to sign a trade agreement with China. With a trade deal in place and China honoring its pledge to buy $50 billion worth of U.S. ag commodities over a six-year period, the “super cycle” already showing signs of life will be jump started in big way.
But also understand that a “super cycle” is not an event so much as a process. At least based on history.
An excellent place to learn about the history of the commodity markets can be found at www.commodityinsite.com. It is there you will find, “Haunted By Markets,” all 757 pages worth. Check it out if you happen to be continually haunted by markets.
Don’t be left behind. A host of signals are pointing to improved ag markets with a strong potential for another “super cycle” to surface and lock in place for the next 10 to 15 years.
And it will be led by food.