Commodity Supercycle? Evidence Mounts for Investors

Is there  a commodity super cycle in its early formation? Take a look at the two charts below.

They show the Commodity Research Board (CRB) Index. This index tracks the futures prices of 19 commodities, including aluminum, coffee, nickel, cattle, silver, and oil.  The first chart is as of October of last year.

The second chart is as of now with the green circle showing the move since October.

In all fairness,  it is a small move up so far. To be more precise, that encircled part of the chart reflects about a 15% move up in the CRB Index.

However, there is a lot of information out there right now that gives some merit to this being just the start of a multi-year bull market in commodities.

For one, we have gone through decades of under-investment in mining, oil, copper, nickel, etc. as the economics simply weren’t there to justify this production activity.

As the global rebound takes hold in a post-COVID world, the supply shortfall across many commodities as a result of this production shortfall will likely become apparent, resulting in robust pricing in many areas.

Do you believe the green energy movement will continue to gain momentum and traction? Well, this will require huge amounts of nickel, copper and silver and other base metals for items such as solar panels and wind turbines.

Is it your belief that electric vehicles (EVs) are the wave of the future? You better have plenty of copper on hand to facilitate that, as it is used extensively in the wiring, inverters and charging stations.

Buckle up

How about the batteries that power all of those EVs?  You are going to need a lot of nickel and lithium as well for that. You get the picture — all of these promising new technologies will require an enormous amount of commodities.

Secondly, the very large fiscal and monetary expansion we are seeing today could result in dollar debasement and higher inflation, which will ultimately result in higher commodity prices.

The key driver of higher inflation is too much money chasing too few goods. Superimpose that on the supply-demand scenario I outlined above and you can see some ammunition for the argument that we on the forefront of some type of a commodities super cycle.

The unknown is basically the depth and magnitude of this new cycle. So strap yourself in and buckle up! We may be on for quite a ride on a commodity supercycle over the next few years.

Gary has more than 30 years of industry experience, which includes research analysis and portfolio management for both retail and institutional accounts. He worked as a Senior Vice President at Wells Fargo Advisors and Wells Fargo Investment Institute for approximately 14 years in total, where he was a senior portfolio manager for both equity and asset allocation portfolios. He was also involved in investment manager due diligence and selection for the firm’s multi-manager portfolio models. Prior to joining Wells Fargo, Gary held senior-level investment management positions with several registered investment advisory organizations. He has been a Chartered Financial Analyst (CFA®) charter-holder since 1989. The CFA is a professional credential earned by investment management professionals after successfully passing three years of rigorous examinations and recording several years as a practising professional within the industry. Gary received his Bachelor of Science in Engineering from Purdue University and his M.B.A. in Finance from The University of Missouri. Additionally, Gary holds his FINRA SIE, Series 7 and Series 66 securities registrations as well as his Missouri Life Accident & Health insurance license. He is a member of the CFA Society of St. Louis and the Financial Executives Networking Group. He resides in Kirkwood, MO with his wife Kathy, and they have three adult age children, Aly, Ryan and Josh.