Tuesday, February 23, 2021

Higher food prices likely to last

Analysts for JPMorgan investment bank foresee a long-term increase in commodity prices, including food.

“We believe that the new commodity upswing, and in particular oil up cycle, has started,” the JPMorgan analysts said in their note. “The tide on yields and inflation is turning.”

Commodities have seen four supercycles over the past 100 years — with the last one peaking in 2008 after 12 years of expansion.

They cite factors such as a post-pandemic recovery, “ultra-loose” monetary and fiscal policies, a weak United States dollar, stronger inflation and more aggressive environmental policies around the world, for their optimism.

Hedge funds similarly haven’t been this bullish on commodities since the mid-2000s, when China was stockpiling everything from copper to cotton while crop failures and export bans around the world boosted food prices, eventually toppling governments during the Arab Spring, they wrote. 

The backdrop is now starting to look similar, with a broad gauge of commodity prices hitting its highest in six years.

Corn and soybean prices have soared as China loads up on American crops. Copper hit an eight-year high amid growing optimism over a broader economic recovery. And oil has staged a strong recovery from the depths of the Covid-19 pandemic as a worldwide supply glut eases.