History Could Hint at a Commodities Supercycle Ahead

Despite an uptick in commodities prices amid rising inflation, there could be a commodities supercycle ahead. At least, there could be if history repeats itself, according to a Visual Capitalist blog.

The blog noted the correlation between equity valuations and commodities prices. Recently, the correlation has hit a 50-year low, which could be the calm before the storm — in the eye of that storm is elevated commodities prices that could last for extended periods of time.

“In recent years, commodity prices have reached a 50-year low relative to overall equity markets (S&P 500),” the blog said. “Historically, lows in the ratio of commodities to equities have corresponded with the beginning of new commodity supercycles.”

As the blog noted, the end only comes when supply and demand equalize, but as shown in the chart mentioned in the blog, that could take years. Over four time periods (1899–1932, 1933–1961, 1962–1995, and 1996–2016), the average duration from trough to trough was 29 years.

Furthermore, upswings in prices could also last for long periods of time. Among the aforementioned time periods, the average upswing in prices lasted 13.3 years — within the average trough to trough timeframe of 29 years, 45% of the time there is an upswing in prices.

The blog also noted that commonalities hinting at a commodities supercycle include a rise in supply, demand, and prices. This notion of a supercycle has also been supported with analysis from global investment firm Goldman Sachs.

“Goldman Sachs expects a commodities supercycle driven by China and the capital flight from energy markets and investment this month after concerns triggered by the banking sector, the U.S. bank’s head of commodities said,” Reuters reported.

Get Ag Commodities Exposure Before Supercycle

Investors looking for commodities exposure ahead of an aforementioned supercycle can look at agricultural commodities. For easy, convenient broad-based exposure, consider the Teucrium Agricultural Fund (TAGS). It offers an ideal option to get agricultural commodities exposure without having to hold various commodities for diversification purposes.

TAGS is essentially a fund of funds, and it features a low 0.13% expense ratio, combining exposure to corn, wheat, soybeans, and sugar through other Teucrium funds that focus specifically on these commodities.

Below are the funds included in TAGS:

  1. The Teucrium Corn Fund (CORN)
  2. The Teucrium Wheat Fund (WEAT)
  3. The Teucrium Soybean Fund (SOYB)
  4. The Teucrium Sugar Fund (CANE)

Alternatively, if investors want specific exposure to a particular commodity, such as corn, wheat, soybeans, or sugar, they can invest in those funds individually.

For more news, information, and analysis, visit the Commodities Channel.