The Stuff that Makes Everything

If you ever wonder why commodities are important, just think of an object around you and ask yourself—what’s that made of?

From the wires in our electronic devices to the tables in our offices, these raw materials are everywhere. Of late, commodity prices have been surging as the global economy recovers, with rising demand from various industries including infrastructure, construction, and livestock.

The above infographic tracks the futures prices of 10 commodities that have seen significant price increases since January 2020.

Commodity Prices, from Bust to Boom

From lumber for home construction to metals for electronics, commodities across the three categories—agriculture, metals, and energy—have been rallying since hitting pandemic lows around March 2020.

Percentage increases may differ slightly due to rounding.

Among agricultural commodities, the price of lumber futures increased 304% between January 2020 and May 2021, reaching record highs. Food prices have also seen a sharp increase since the halfway point of last year. As of May 7th, the price of corn futures was at $7.3 per bushel, nearing its all-time highs of $8.3 per bushel in 2012. Furthermore, soybean oil prices were also at their highest level in the last decade.

Among metals, iron ore futures climbed 114%, reaching a record high. Tin and copper were also both moving towards all-time high prices as of May 7th, followed by palladium and silver, both of which saw more than a 50% rise in prices since January 2020.

Several commodities are either nearing or have broken past their all-time highs. Why are commodity prices increasing?

Lumber

Lumber—the form of wood that builders use to build and renovate homes—has been the talk of the town due to the massive increase in its price.

This is in stark contrast to 2019 when lumber prices were so low that some sawmill owners were better off ceasing operations. In addition to sawmill shutdowns, outbreaks of a bark-eating species of beetle have destroyed 15 years worth of log supplies in British Columbia, Canada, limiting the supply of lumber.

Meanwhile, home buyers are taking advantage of the low costs of borrowing due to record-low mortgage rates in the U.S. This is driving up the demand for lumber from the housing market, while supply is in a bottleneck.

Corn and Soybeans

Corn and soybeans are common feed grains for livestock, including swine, beef, and poultry.

China—the largest producer and consumer of pork—has been battling outbreaks of African swine fever (ASF) since 2018, losing over 100 million pigs. As the country’s hog-herd recovers from this disease, Chinese demand for corn and soybeans is increasing and supporting higher prices. In fact, China’s corn imports from the U.S. increased 2,072% between 2019 and 2020.

Iron Ore and Tin

The global economic recovery, led by China, is fueling the demand for steel, and in turn, for iron ore. On the supply side, the industry is facing a shortage, with a decline in output from top producer Vale following a disaster at its tailings dam in Brazil.

Tin prices are soaring due to rising demand from consumer electronics amid tightening supply. According to Roskill, pandemic-induced supply disruptions led to a 10% decline in refined tin output in 2020. Additionally, shipping disruptions and low stocks at the London Metal Exchange (LME) are intensifying tin’s supply squeeze.

Copper

Copper’s story is similar to that of iron ore, wherein rebounding economies are boosting demand for the red metal. However, investors are particularly bullish on copper due to its critical role in green technologies, with looming concerns over its long-term supply.

Palladium

Many countries are imposing stricter auto emission standards—and while this may surprise you, it’s driving the demand for palladium. The precious metal is a key ingredient in catalytic converters that turn toxic emissions from gas-powered vehicles into less harmful gases.

Unlike the rollercoaster rides that are commodity prices, palladium prices have been rising for five years straight. What’s more, the palladium market has seen an annual deficit since 2012. And this trend is likely to continue with flooding at palladium mines in Russia expected to cut global supply by 5% in 2021.

The Start of a Commodity Supercycle?

While it’s difficult to predict the sustainability of these high prices, the increase in commodity prices across the board has investors gearing up for a potential commodity supercycle.

Commodity supercycles are decade-long periods during which commodity prices trend above their long-term averages. The last supercycle lasted from 1996 to around 2016, driven by rapid industrialization in Brazil, India, Russia, and China (BRIC economies). Today, governments around the world are adopting mineral-intensive clean energy technologies, which will likely increase the demand for minerals for years to come.

Are we on the brink of a new commodity supercycle?