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  • Jonathan Poyer

As We See It: Commodities Peak? - A Lotta Bit of Yes And A Lotta Bit of No

Here’s a question in everybody’s mind - Have we seen the top in commodity prices? We can see both sides of the argument.

Yes. The Fed is going to move far enough to break things, that will push us into a recession or worse, and commodity prices fall in recessions. Its global too, with Europe and Japan falling out of bed. China won’t come to the rescue this time either, with the Ponzi bubble that is China real estate deflating and Covid lockdown mania still ongoing. Forget it, the commodity trade is over. As the USD has been on a tear recently, for those overseas buying things priced in USD it's even worse. Oil in Europe and the UK is through 2008 spike highs already, demand destruction ensued then and will now.

No. Virtually every commodity, from grain to oil to electricity to butter of all things is tight.

One great example you don't hear to much about...beef. Beef is one of the few commodities that has risen very little over the last year. Why is that, you ask. Because US ranchers have been liquidating the herds and putting that beef on the market, as costs have risen.

That has keep near term prices lower, but if the economy recovers, the herd will not be rebuilt fast enough and prices will rise rapidly. A classic whipsaw, and its happening everywhere. Prices have risen because of supply issues, and raising rates will not help supply as it raises the cost of production. Should the Fed take its foot off the brake, supply will not be replenished fast enough to satisfy instantaneous new demand.

Result - higher prices, a bit down the road.

Last week we said – watch rents. Look at this chart.

If we have seen peak hawkishness, get bullish commodities.

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