Agflation is here to stay: How to play the agricultural commodity bull market

Agricultural commodities look like they are beginning to see the start of a sustained bull market. First, precious metals, then base metals and now agriculture. Since the middle of 20202 soybeans and corn have increased by 55% with wheat registering a 35% gain.

Governments in Asia (China in particular) and in North Africa have been buying imported grains and pulses in an effort to build up their strategic reserves. Authorities in many countries made use of those reserves to dampen down domestic food prices during the pandemic, but now those reserves are running low. read more

The best of Materials Risk 2020

As always at this time of year its helpful to look over your shoulder and glance back and see what has worked, and what hasn’t. The most popular posts from the past year show that Materials Risk readers are keen observers of history, eager for insights and clues from the past. I hope to produce even better content in 2021 in what I think will prove to be just the beginning of an exciting decade for commodity markets and a profitable one for investors.

1) The predictive power of the copper-gold ratio read more

The Overton Window, ESG and the role of commodities

The Overton Window is a concept in political theory developed by Joseph P. Overton which suggests that there’s a ‘window’ of acceptable ideas in public discourse. Everything inside the ‘window’ is normal and expected, while everything outside is radical, ridiculous, or unthinkable.

Overton argued that the easiest way to move that ‘window’ was to force people to consider ideas at the extremes, as far away from the ‘window’ as possible. Forcing people to consider an unthinkable idea, even if they reject it, make all less extreme ideas seem acceptable by comparison. It moves the ‘window’ in that direction. read more

‘The revenge of the old economy’: The factors that will underpin the next commodity bull market

In a live panel session organised by FT Live, entitled The Global Energy Outlook: From Crisis to Growth, Global Head of Commodities at Goldman Sachs, Jeffrey Currie outlined his thoughts on the themes likely to impact on commodities over the next decade. In a wide ranging discussion Currie outlines the three key themes underpinning his view that we are at the beginning of the next commodity bull market: structural under-investment, government policy and macro-tailwinds.

“It’s important to separate the vaccine, which is a tactical upside catalyst, from the pandemic itself, which I would argue is a structural catalyst to a longer-lasting bull market. As we look out to 2021 the vaccine creates that V-shaped recovery in demand and prices, but looking beyond that we believe it’s the beginning of a structural bull market not only in oil, but across the entire commodity complex.And when when we think about the big question of lasting demand the big question is in jet travel and we think the vaccine will eradicate a lot of that weakness…we think the market’s going to be in substantial deficit throughout the end of next year and beyond into 2022. Driving that structural bull story are three themes. read more

What I learned from “The Art of Execution: How the world’s best investors get it wrong and still make millions” by Lee Freeman-Shor

Over seven years, 45 of the world’s top investors were given between $25 and $150m to invest by fund manager Lee Freeman-Shor. His instructions were simple. There was only one rule. They could only invest in their ten best ideas to make money.

The process gave Lee the perfect position to view what investment strategies succeeded and failed and even more importantly how some of the top investors played the market conditions they were dealt. In his book (The Art of Execution: How the world’s best investors get it wrong and still make millions in the markets) he outlines what he learned. The title of his book really does say it all. read more

Back to backwardation: Why the shape of the futures curve is positive for commodity prices in 2021

The commodity futures curve has moved sharply over the past few months towards backwardation. This should increase the incentive for long side investors to park their funds in commodities and given numerous macro tailwinds (e.g. a weaker dollar, rising inflation expectations and infrastructure spending), set the market up for a promising 2021.

But first, a little bit of background on the futures curve. When the futures price curve is downward sloping, i.e. the futures price of a commodity in say six months’ time is lower than the current spot price, the market is said to be in backwardation. This is also known as an inverted curve or an inverted market. read more