January 28, 2021

Commodity Insight: Super cycle to lift incomes

During the inflationary years of the 1970s to the early 1980s, the commodity markets boomed thanks to several forces. One was weather issues. Another was Russia gobbling up U.S. foodstuffs and in the process drawing supplies to historically low levels.

Also lending support was the U.S. dollar that was anemic for years on end. And when the commodity markets crashed in the early 1980s, prices stayed depressed into late 1998.

In my book, “Haunted by Markets,” is a chapter entitled, “Incredibly Bearish First Six Months of the Year.” I wrote, “Though not certain, the first half of 1998 could be one of the most bearish six-month periods in history. As a matter of fact, the first six months of 1998 may have been the most bearish six months since the Crash of 1929 and in the months and years that followed. This is just how bearish 1998 has turned out to be.”

Then along came what some call the Great Commodity Super Cycle of the 2000s, when commodity values of all kinds took off to the upside after hitting a 69-year low in 1998.

That particular super cycle only lasted until the 2008 financial crisis brought about by the housing collapse. Only in recent years have commodities, per se, been recovering from the 2008 to 2016 collapse.

However, based on recent comments from some major U.S. financial institutions, it seems as if another super cycle for commodities is at hand. Goldman Sachs is on record calling for a new bull market with commodities that will exceed the 2000-2008 super cycle.

Others, such as Geoffrey Caveney writing for the Stock and Gold Market Report, claim “the commodity super cycle never ended, it just paused — and now it’s back.”

With all that in mind, here is the first column I wrote in 2020: “In the decade of the 1970s, grain prices rose sharply because of two main events. First, what is now called the Great Grain Robbery. Second was a series of weather issues that provided a tailwind for prices that lasted into the 1980s.”

According to Wikipedia, “The great grain robbery was the July 1972 purchase of 10 million tons of United States grain, mainly wheat and corn, by the Soviet Union at subsidized prices, which resulted in higher grain prices in the United States. Grain prices soon reached 125-year highs in Chicago. In a 10-month span, soybeans went from $3.31 to $12.90 a bushel. Food prices around the world rose 50% in 1973.”

Here is the final paragraph from my column: “In the new year and new decade ahead, the odds are high that weather issues will play a major role in determining the values of foodstuffs in the U.S. and across the globe. What I am seeing, hearing and believing is that history is on the verge of repeating itself similar to the early ’70s, following the Great Grain Robbery that kept a bid under the agriculture markets well into the ’80s.”

Coming into 2020, I was bullish commodities because all my work suggested a super cycle was about to unfold in the new year. Unfortunately, the coronavirus pandemic in the United States and across the globe brought about a sharp decline with commodities, as well as the stock market.

In the first three months of this year, stocks and commodity values collapsed. The opening months of 2020 were a disaster for the bulls, to say the very least.

But a dramatic price recovery took place when Congress passed the largest economic stimulus package in history while the Fed not only promised to keep interest rates low, but also began tolerating, asking for, pleading for and begging for more inflation.

And since late March, markets of all stripes have rallied impressively — so impressively, in fact, many are now calling for a decade of bull markets for commodities.

Thus, after 12 long and agonizing months, I am no longer a lonely voice calling for a new and dynamic super cycle for the commodity markets. A number of smart money financial institutions and individuals are bullish hard assets of all kinds.

They should be because the fundamentals, as I view them right now, remind me of the period highlighted by the great grain robbery of the early 1970s that spilled over to the 1980s and lifted incomes.

The biggest mistake U.S. farmers and ranchers will make in the period ahead is ignoring the signs suggesting much higher prices are coming for grains and livestock. The key to success in agriculture is marketing.

It is of the utmost importance to get the best information possible when it comes to buying, selling, or sitting tight on production. Be informed and remain alert.

A commodity super cycle is at hand as the sun is finally shining brightly on American agriculture. Incomes will be lifted. Make hay while the sun is shining.