Understanding the price roller coaster

Ignore the headlines; farmers advised
to do their homework before making 
long-term investment decisions

Farmers can be forgiven if they are confused about what a commodity supercycle is and whether they are living inside one.

Bold headlines and fuzzy prognosticators make the situation confusing.

“The commodities supercycle is a myth,” said one research article headline in December 2016. A month later Bloomberg news service reported: “Two bullish signs herald the return of a commodities supercycle, says analyst.”

In February 2017, another research firm declared “New commodities supercycle has begun,” while in the same month the Financial Post published an article under the headline “Don’t expect another commodities supercycle, but oil at $60 is better than $30 for your portfolio.”

An unscientific walk through newspaper and research report headline history since the slump in commodity prices that began in 2013 brings a bewildering oscillation between positive and negative declarations about the existence or non-existence of a commodity supercycle.

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Often the stories and reports came after commodity prices had entered a strong trend, surging or slumping for some time.

After all, if little was happening in commodities, there wouldn’t be much need for stories and reports about those sectors and few readers would want to spend their time reading about the subject.

But the headlines often seem to reflect a trend-following bias, declaring new supercycles being born after commodity prices had risen for a few months, or suggesting the supercycle might have died after they had fallen for a while.

For instance, there were a number of stories in late 2013 following months of weakness and lack of dynamism in some commodities, particularly crude oil.

“Is the commodity supercycle dead?” pondered one. “Is the commodity supercycle really at an end?” wondered another.

“Don’t mourn the death of the commodities ‘supercycle,’ ” suggested a third, as the market bottomed in December 2015.

However, in February 2016 crude and commodities overall began a five-month rally, and right on cue, bullish headlines appeared.

“Has the bull market for commodities begun?,” explored one CNBC article in June 2017.

“Meet the bull market in commodities,” said a June Forbes article. “New commodity supercycle?” asked another Forbes article the next day.

From February 2016 to April 2017 commodities rose by about 50 percent as gauged by one leading index, and bullish headlines followed.

“Morneau advisor expects another commodity supercycle, sees oil topping US$70 per barrel,” BNN reported in May 2017. A research firm in August 2017 declared: “Why the bull market in commodities is just beginning.”

Like most newspaper stories, by the nature of their brevity and quick composition, the analysis and explanation about commodity supercycles is often limited and vague, not providing much for the reader beyond simple descriptions of what some believe a supercycle is supposed to be.

Some of the research and backgrounding reports don’t go much further, although some delve more deeply into data.

However, the attention to the concept today is a far cry from the early 2000s, when the notion of commodity supercycles was virtually unheard of outside a handful of specialist economists. These days “supercycle” is thrown about in the markets as if it’s an everyday concept about which not much definition is needed.

The potential danger of some prognosticators’ comfort with the term today is that some seem to apply it to any rally in the market, while others appear to feel it only applies to a period of rising commodity prices rather than the entire trough-to-trough cycle, neither of which would be shared by most economists who have studied the phenomenon.

For farmers, whose long-term futures depend upon investment decisions they make upon commodity price trends, relying upon sporadic stories in the press or from market research firms offers little clarity.

Detailed economic analysis might make for heavy reading, but it is less likely to create mental whiplash than following headlines during bull and bear moves in the markets.

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