Defining a commodity super-cycle and the external driving factors
It’s not far off to say that many producers are trying to decipher what is going on in the commodity markets right now. If you’ve been following some of the media reports, you’ve most likely seen headlines that involve the words “commodity super-cycle.”
We see it, but do we know exactly what a commodity super-cycle is?
Brett Stuart, chief executive officer of Global AgriTrends, says it’s somewhat of a ‘perfect storm’ that happens when you have multiple factors that combine simultaneously to supercharge the wave of increasing prices.
“To really fuel a super-cycle you’ve got to have a lot of external things going on — not just supply and demand. Monetary policy, a big booming customer like China. You’ve got massive money supply inflation. Stimulus. Low interest rates. And all of a sudden we look around and go ‘woah’ — agriculture commodities are way undervalued compared to the stock market, etc,” Stuart explains.
We’re currently sitting in a long equity bull-market, which also has many questioning: are commodity runs different than equity runs? The short answer according to Stuart is yes, as commodities are driven much more by supply and demand principals.
“There’s an underlying value to canola, corn, meat, poultry and more, as opposed to bitcoin, dogecoin, or whatever those markets are,” he says. “We have had an incredible run in the equity market, and what that’s really done, is cause us to stop and go ‘wait, agriculture is the cheap buy right now.’ When you get a spark or hint of inflation, money starts flowing into any other commodity that may catch the wave, and I think we are just seeing that as a secondary impact of fundamentally, what was already moving these prices higher.”