Some Commodities Have Now Wiped Out All of Their 2021 Gains

For all the talk of a commodities boom, some markets have now wiped out gains for the year and several more are close to doing so.

Soybean futures have erased their 2021 advance, sliding more than 20% from an eight-year high reached in May. Corn and wheat have also tumbled from multiyear highs. Other commodities that saw big rallies evaporate include platinum, while once-surging nickel, sugar, cotton and even lumber have stumbled recently.

The fact that some commodities markets are falling while others — including crude oil and tin — are holding gains underscores how unevenly the complex is responding to economies reopening and expanding once again. While those materials have climbed on strong demand fundamentals, others face their own unique headwinds, such as an easing supply worries in soybeans and monetary policy uncertainty in the case of gold and silver.

Some materials also took a hit this week on China’s efforts to slow inflation and Federal Reserve signals for interest-rate increases, with the dollar rising and the Bloomberg Commodity Index set for its worst week since the start of the pandemic.

“Risk-off is front and center thanks to the hawkish words from the Fed, which came on the back of the Chinese government-led directives over prior weeks,” said Michael Cuoco, head of hedge-fund sales for metals and bulk materials at StoneX Group. “Central-bank stimulus helped the markets gather steam in the spring of 2020, and now there is a bit of a macro reset.”

Even some of the markets that are clearly benefiting from the reopening are seeing a pullback, with copper heading for its worst week in more than a year. The cool-down in many raw materials comes after the Bloomberg commodity gauge reached multiyear highs. Analysts including those at Trafigura Group have said tight supplies and rampant demand point to the possibility of another supercycle — an extended period during which prices are well above their long-term trend.

A gauge of the dollar extended gains on Thursday after climbing the most in a year on Wednesday, making commodities less appealing to investors holding other currencies. A big backwardation in many commodities and seasonality accounts for some of the recent slump as futures contracts roll over.

China has stepped up its campaign to rein in prices and reduce speculation in a bid to ease the threat to its economy from soaring raw-materials costs. The country’s top economic planner on Thursday reaffirmed its intention to cool commodities, and said it will release metals from state reserves in a timely manner to push prices back to a normal range.

Getting Whiplash

Also hurting prices of many agricultural products has been improving weather in growing regions. Recent beneficial rains have corn futures on track for the steepest monthly decline since 2011 and for soybeans since 2016.

“The volatility we are seeing now is all about weather,” Stephen Nicholson, a senior analyst for grains and oilseeds at Rabobank, said in a phone interview on Thursday. “Over the last few weeks you just get whiplash from day to day.”

The slump in many resource prices deepened this week after Fed officials sped up their expected pace of policy tightening, fueling worries that the U.S. central bank would soon pare stimulus that’s helped spur stellar gains in metals, agriculture and energy.

Still, energy and industrial metals, which have gained from bets that reopening economies will stoke demand, are still well above where they started the year, and some analysts say the rally is unlikely to fade significantly.

“We believe we are in the early innings of a decade long strong cycle in commodities, similar to the cycle that took place from the late 90’s through 2008,” said Jason Bloom, global market strategist for Invesco, which oversees $1.4 trillion assets for clients. “The supply constraints are relatively insulated from the language of the Fed in a given meeting. China can push around prices in the short-term by releasing reserves, but they don’t control markets.”

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