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Despite the recent decline, commodities are still a popular bet

Many commodities, from copper to wood, have fallen from peak pandemic prices, easing the most serious concerns about inflation spirals. But investors are still bullish on many of them, claiming they still look cheap.

Copper is down 10% from the March record. Maize and soybean futures fell 13% and 19%, respectively, from their May highs. Pigs lost 17% this month.

Federal Reserve Board Chair Jerome Powell recently said Dramatic arc of timber We have shown how the ultra-high material costs that characterize the reopening economy are the result of supply bottlenecks and other factors that are not expected to continue as the global economy moves further away from the blockade. Timber futures fell 54% after reaching more than four times the average price of the most recent spring before the pandemic.

Richard Dunbar, Head of Multi-Asset Research at Aberdeen Standard Investments, said: “But lately, there have been some reminders that prices aren’t going straight.”

Despite the recent decline, timber remains twice the typical price at this time of the year. Copper, low crops and pigs are still the highest prices in the last few years.With oil Natural gasThe delay in resumption has skyrocketed to the highest level since 2018.

Commodity prices provide investors with conflicting signals. On the other hand, rising prices are seen as a threat to recovery, as they lead to higher product costs. Investors, on the other hand, benefit from rapid growth and tend to stack up their products to protect the rest of their portfolio from inflation.

Next week, investors will monitor the June employment report for the latest indicators of economic recovery.Revenue from food companies

General Mills, Inc..

, Alcoholic beverage seller

Constellation Brands, Inc..

, And household goods retailers

Bed bath & beyond ink..

Introducing personal consumption habits and the state of the company Management of higher material costs..

ConocoPhillips

We planned to call investors who could provide insights into how US energy producers are reacting to rising prices.Meanwhile, OPEC and oil market allies such as Russia will meet on Thursday. Consider boosting output..

Ed Egilinsky, Head of Alternative Investment at Direxion, which manages exchange-traded funds betting on commodity futures prices, said: “I don’t think it’s as temporary as the Fed says.”

Consumer flashes, government spending such as post-pandemic replenishment in China, Trillion dollar infrastructure bill Negotiated in Washington, and for years Underinvestment in capacity That’s why some investors are bullish on their commodities. Others see those factors as a signal that they may be the source of bargains.

Share your thoughts

What is the future of the commodity market?

Commodities tend to work better compared to other asset classes during inflation and are historically cheaper than equities, according to researchers.

Deutsche Bank..

Thanks to the great influence of technology companies, which have become the most valuable companies in the world, major stock indexes have skyrocketed to record in the last decade.

“Products as an asset class haven’t been in fashion for more than a decade,” said Jim Reed, a German research strategist. “A slight rotation advantage can have a significant impact on price.”

Matt Fine, portfolio manager at Third Avenue Management LLC, has loaded its $ 663 million value fund with shares of copper mine workers and companies that provide services and equipment for offshore drilling, including shipowners. I did.

Tidewater Inc..

And

PGS ASA,

We sell seismic data for seafloor exploration.

Ocean drilling Rapid decrease During the long-standing price competition between OPEC and US shale producers, few service companies are in a position to benefit from the use of solvents if activity revives due to rising oil prices.

Last month’s corn futures prices were down 13% from their May highs.


Photo:

Daniel Acker / Bloomberg News

“I’m not bullish on the product itself, except for copper,” Fine said. “I’m bullish on virtually falsely priced securities, and the natural resource space remains an opportunistic place where we can still find seriously wrongly priced securities.”

One of the biggest holdings of his fund

Interfor Corp..

, Canadian sawmill operator making record profits since last summer Historically cheap pine logs in the southern United States For high-priced timber. Interfor’s share price has risen 174% over the past year, compared to 39% for the S & P 500. This week, Interfor will distribute part of the timber boom plunge with a special dividend of $ 1.65 per share.

Lumber’s fall isn’t too bad for Interfour and his rivals, Fine said. They can still make a profit by selling timber at prices north of pre-pandemic records, reducing the risk that exorbitant timber costs will ruin the housing boom and deplete 2×4 demand.

Analysts have come up with ideas for investors to take advantage of high commodity prices.

BofA Securities proposes the Toronto Stock Exchange Index. Commodity business drillers, miners, sawmills and others account for more than a quarter of Canada’s stock basket, compared to less than 6% of the S & P 500, and the Toronto Index is against US stocks across the course. It is traded at a large discount.Of the current tech stock boom

Goldman Sachs

On Friday, producer EQT Corp. Pipeline operator Targa Resources Corp. And recommended stocks of five large companies along the natural gas supply chain, including liquefied natural gas exporter Cheniere Energy Inc.

US natural gas futures have risen one-third since March, more than doubling a year ago, and European gas prices hit their highest in years. Stockpiles around the world burn out Faster than new supplies hit the market.

China, which buys about 60% of the world’s resources, is at risk for these bullish bets. Demand from China has helped push soybeans, corn, natural gas, coal, copper and zinc to recent highs, but recently the country has taken steps to keep prices down.

That includes efforts to curb domestic speculation, Beijing said earlier this month to free copper, zinc and aluminum from stockpiles and lower prices. The move has helped push copper prices from record levels, and analysts say there is reason to believe that China will do the same to keep costs down.

“Supply can go onstream from unexpected locations,” said Dunbar of Aberdeen. “People thought it would take up to five years to see many new supplies, but it turned out to be five minutes.”

Demand for timber surged during the pandemic, with prices hit record highs. In this video, we’ll explain what drives the timber boom, why profitable people, and those who grow trees aren’t benefiting. Illustration: Liz Ornitz / WSJ

Write a letter to Ryan Desenberg ryan.dezember@wsj.com And George Kantchev georgi.kantchev@wsj.com

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Despite the recent decline, commodities are still a popular bet

Source link Despite the recent decline, commodities are still a popular bet

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