While some investors welcomed the dramatic increase in commodities prices so far this year, others saw them as a warning sign of real inflation coming to the United States and other markets. A foreboding opening to a Wall Street Journal article from June 7th said, “The run-up in commodity prices is casting a cloud over the global economic recovery, slamming vulnerable businesses and households and adding to fears that inflation could become more persistent.” Commodity price increases alone weren’t the only factor fueling inflation worries, but they were an easy piece of data to point to and some noting a historic correlation between the two.
Monthly Correlation between Commodities and Inflation 1990 – 2021#Commodities #inflation pic.twitter.com/duOL7MNiBI
— Carlos Arcila-Barrera, CFA, CAIA, SCR (@caarcila) June 14, 2021
But others argued that these price increases are transitory and are more indicative of a US economy beginning to re-open than a concern for long term inflation. In a Wednesday press conference, Fed Chairman Jerome Powell said, “You’ll see that the incoming data are consistent with the view that the prices that are driving that higher inflation are from categories that are being directly affected by the recovery from the pandemic and the reopening of the economy.” A recent survey of fund managers found that nearly three-quarters of them believe that inflation is transitory, further casting doubt on inflation panic.
Fund managers are bullishly positioned right now, with 72% saying inflation is transitory and 23% saying it's permanent: BofA June survey. Long commodities overtakes long Bitcoin as the "most crowded trade," and allocation to bonds falls to a 3-year low.
— Lisa Abramowicz (@lisaabramowicz1) June 15, 2021
Lumber was the poster child for the inflation is here to stay camp, but Powell noted that the recent performance for the commodity supports the transitory camp, after seeing its price get cut (pun intended) nearly in half. Timber indeed.
Is Lumber alone? Not quite. We looked at the current price of each of the commodity futures we track compared to their 52-week highs. 18 of commodities are currently down more than 10% from their 52-week high.
Is this data a correction? Or is the inflation narrative unravelling? We shall see.
| Futures Contract | % Off High | 52W High Date |
| Lumber (Jul ’21) | -46.86% | 5/10/2021 |
| Platinum (Jul ’21) | -20.56% | 2/16/2021 |
| Soybean Oil (Dec ’21) | -18.58% | 6/8/2021 |
| Hard Red Wheat (Sep ’21) | -18.45% | 5/7/2021 |
| Gold (Aug ’21) | -16.34% | 8/7/2020 |
| Silver (Jul ’21) | -15.82% | 8/7/2020 |
| Cheese Cash-Settled (Jul ’21) | -15.51% | 5/12/2021 |
| Class III Milk (Jul ’21) | -15.49% | 5/12/2021 |
| Palladium (Sep ’21) | -15.03% | 5/5/2021 |
| Canola (Nov ’21) | -14.80% | 6/7/2021 |
| Wheat (Sep ’21) | -14.56% | 5/7/2021 |
| High Grade Copper (Jul ’21) | -13.21% | 5/10/2021 |
| Orange Juice (Jul ’21) | -13.18% | 6/22/2020 |
| Corn (Dec ’21) | -13.09% | 5/7/2021 |
| Soybean (Nov ’21) | -11.84% | 6/7/2021 |
| Soybean Meal (Dec ’21) | -11.11% | 5/12/2021 |
| Cocoa (Sep ’21) | -10.91% | 11/24/2020 |
| Rough Rice (Sep ’21) | -10.77% | 5/5/2021 |
| Coffee (Sep ’21) | -9.81% | 6/1/2021 |
| Spring Wheat (Sep ’21) | -9.46% | 6/7/2021 |
| Lean Hogs (Aug ’21) | -9.44% | 6/7/2021 |
| Sugar #11 | -9.27% | 2/22/2021 |
| Butter Cash-Settled (Sep ’21) | -9.27% | 4/13/2021 |
| Pork Cutout (Jul ’21) | -7.87% | 6/4/2021 |
| Sugar #11 (Oct ’21) | -7.68% | 5/12/2021 |
| Oats (Dec ’21) | -6.99% | 6/7/2021 |
| Cotton #2 (Dec ’21) | -5.23% | 2/25/2021 |
| Natural Gas (Jul ’21) | -4.84% | 6/15/2021 |
| Gasoline RBOB (Aug ’21) | -4.07% | 6/9/2021 |
| ULSD NY Harbor (Jul ’21) | -3.52% | 6/10/2021 |
| S&P GSCI (Jul ’21) | -2.83% | 5/11/2021 |
| Crude Oil WTI (Jul ’21) | -2.59% | 6/16/2021 |
| Crude Oil Brent (F) (Aug ’21) | -2.28% | 6/16/2021 |
| Feeder Cattle (Aug ’21) | -1.60% | 4/8/2021 |
| Live Cattle (Aug ’21) | -1.05% | 6/16/2021 |
| US $ Index (from low) | 2.85% | 1/6/2021 |
