News & Resources

Todd's Take

6 Oct 2015

By Todd Hultman
DTN Analyst

It is no secret that grain prices have not done well in 2015, but neither have most other commodities. A quick survey shows corn, wheat, and gold near their lowest spot prices in five years; soybeans, cotton, sugar, copper, silver, and crude oil near their lowest spot prices in six years. Soybean oil rounds out the bottom of the list with the lowest spot price in nearly nine years.

Of course, each commodity has its own bearish story, but when so many are trading at multi-year lows, you have to suspect a strong macroeconomic influence at work and we certainly have that. In short, the U.S. economy has done a better job of rebounding after the financial meltdown of 2008-09 than other countries and the advantage has boosted the U.S. dollar to its highest level in 12 years.

At the same time, China's economic slowdown has not only slowed demand for raw materials and industrial metals, but has also had a dampening effect on the economies that supplied them. Finally, the U.S. has been so good at increasing oil production that it has broken oil prices and the budgets of many oil-producing countries.

The result is the world economy is currently straining to grow and deflation remains a bearish threat to commodity prices. As bearish as that sounds, the current malaise reminds me of another time when the case for commodities looked gloomy -- 2001.

In 2001, spot corn traded at roughly $2.00 a bushel, soybeans at $4.50, gold at $270 an ounce, copper at 70 cents a pound, and crude oil at $26 a barrel. Investors, for the most part, ignored commodities, choosing instead to ride the stock market's bullish wave of the late 1990s, powered by the collapse of the Berlin Wall and return to a federal budget surplus. Gold was so unpopular that European Central Banks agreed to limit sales, fearing they would collapse prices if too much sold at once.

Also hurting commodities, the Federal Reserve pushed the federal funds rate up to 6.5% in May 2000 as Chairman Alan Greenspan sensed the irrational exuberance of the dot-com bubble. A high interest rate plus the goodwill of a budget surplus drove the U.S. dollar index up to 120 by June 2001, the highest level in 15 years.

If we would have talked in mid-2001, I would have mentioned all kinds of reasons that commodities were cheap and explained that the macro teeter-totter had dropped them to their bottoms, but we couldn't have seen the bullish forces that were lying in wait.

Only later would we witness the World Trade Center come tumbling down on that clear fall day. We could then see the stock market slide lower and the Fed push the federal funds rate back down, eventually reaching 1% by mid-2003. Very quickly, the bullish argument for the U.S. dollar disappeared and, once again, commodities became a viable investment.

The rumblings of war certainly helped crude oil prices in 2002, but it was the waking giant of China that later boosted the prices of oil and many other commodities -- grains included -- farther than anyone ever expected.

This does not mean that today's depressed commodity market will bring on another 9/11 or bullish surprise as big as China. However, when we see nearly all commodities beat down to cheap levels, the market is often over-responding to the bearish news that it knows and is under-estimating the future events that none of us know.

As in 2001, the most bullish thing I can say is grain prices are fundamentally low and the bearish reasons are obvious. I don't know yet what will shake up the current outlook, but both the U.S. dollar and stock market are suspect. Bullish changes aren't on the radar screen yet, but we are watching.

Todd Hultman can be reached at

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