Commodities Riding the Super Cycle

By Paul Springer

Commodity markets continue to perplex large and small investors alike. Should investors expect diversification from commodities, or are they converging with equity markets?

Some traders are talking about a “super cycle” according to Reuters:

Now, as key indicators such as the Reuters-Jefferies CRB Index .CRB, the S&P Goldman Sachs Commodities Index .SPGSCI and the Dow Jones UBS Commodity Index .DJUBS are at their highest levels since October 2008, when prices were collapsing during the financial crisis. Now some traders are talking about a new multi-year rally in commodities or “super cycle.”

These breaking news developments bear on commodity markets and the platforms where they are traded.

The Wall Street Journal notes a ripples-in-the-pond effect from the government’s decision to raise the limit on ethanol in gasoline from 10% to 15%. “Several sectors object to the changes,” the article says:

The livestock industry fears rising ethanol demand will increase costs for corn used for animal feed. Gasoline producers are concerned the move to so-called E15 will cut into demand for the petroleum fuel they produce and void warranties on millions of vehicles. And gas station owners fear costs and confusion will be created because the new blends won’t be approved for all cars and trucks.

CommodityOnline says cardamom index futures (yes Virginia, there is a cardamom index) are surging due to a short squeeze.

Farmers Weekly Interactive notes that developments in the U.S. corn markets are pushing wheat prices up in the U.K.:

Prices here have rallied over the past week, although the USDA report proved to be the biggest driver. Following its release, November wheat futures briefly climbed to £170/t, but after traders’ profit they came back to nearer £166/t as Farmers Weekly went to press. Spot values have also risen, averaging about £155-160/t ex-farm by mid-week.

MarketWatch: The U.S. dollar weakened as gold firmed up after the Federal Reserve expressed its views. Lind-Waldock senior market strategist Adam Klopfenstein told MarketWatch that there are several drivers behind gold’s continuing rise, but investors should be careful.

“Klopfenstein, however, cautioned that gold has become too easy to buy and hold in a time of daily record-breaking prices, and expects a correction at some point, although unlikely in the next couple of days,” the article says.

Scientific American explains the increasing importance of rare earths, which have been exciting investor interest due to their scarcity and importance to a variety of technological developments.

Bloomberg finds that the Commodity Futures Trading Commission is worried about a flash crash equivalent in futures markets and is taking steps to avoid such trading disasters. “The top U.S. commodity regulator will review algorithmic trading and other practices such as ‘spoofing’ and ‘quote stuffing’ as part of the largest rewrite of Wall Street rules since the 1930s.” it reports.

The CFTC is taking some heat on the flash crash report it prepared with the Securities and Exchange Commission, according to Dow Jones.

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