The fall in the prices of many raw materials – corn, flour, honey, and others – raises hopes that a significant source of inflation may be weakening, writes The Wall Street Journal.
Natural gas prices rose more than 60% before falling again to end the quarter by 3.9%. The price of light crude oil fell from $120 to $106 per barrel. Wheat, corn, and soybeans are all down relative to their prices since the end of March. The price of cotton is down by more than a third from its level at the beginning of May. The prices of copper and wood materials, indicators of the state of the economy, are down by 22 and 31%, respectively. A basket of industrial materials traded on the London Stock Exchange posted its worst quarter since the 2008 financial crisis.
Many commodity prices remain at historically high levels. Still, some investors see the reversal as a sign that the Federal Reserve’s efforts to slow the economy are starting to dampen demand.
“More moderate commodity prices are clear evidence that inflation is cooling,” said Louis Navellier, Navellier & Associates.
Commodities have drawn additional interest on Wall Street, where investors watch volatile commodity markets as a gauge of inflation. They started investing in them to counteract the effect of rising prices on the rest of their portfolio.
Shares of exchange-traded companies were among the few havens for investors amid the stock market’s weakest half-year in decades. Despite falling from the highs they hit earlier in the quarter, shares of oil producers Exxon and Occidental Petroleum ended the first half of the year with price gains of 40% and 103%, respectively. Shares of fertilizer maker Masaic rose 20%. Grain trader Archer Daniels Midland added 15% to its estimate.
Investors this week will be watching the minutes of the Fed’s June 14-15 meeting, due out on Wednesday, for signs of rate hikes for the rest of the year. The US central bank is trying to slow the highest inflation since the 1980s by reducing demand without pushing the economy into recession.
Traders and analysts said part of the decline in commodity prices could be traced to a retreat by investors who flocked to commodity exchanges seeking refuge from inflation. Tracy Allen, a strategist at JP Morgan, noted that about $15 billion was moved out of commodity futures markets in the week ending June 24. It’s the fourth consecutive week of outflows, bringing the total amount of withdrawals from markets this year to about $125 billion, a seasonal record that exceeds even the exits from positions in 2020 when economies shut down.
“I don’t know if Fed policies are slowing the economy, but that’s what fund managers are betting on,” said Craig Turner, StoneX Group.
Much of the price increase was due to a supply hit from measures to contain the coronavirus pandemic, weather conditions last year – which reduced harvests and affected fuel stocks – and the war in Europe. These challenges are easing, although supply shocks still affect prices.
