What Caused this Gangbusters Commodity Boom?

Real Clear Markets ^ | 12/29/2010 | Daniel Dicker

[SeekAndFind]

Commodities have been the story of 2010, having been much more robust than any other capital market this year.

Oil is up a relatively weak 22%, a paltry move in comparison to metals like copper, up more than 30%, or silver, up 70%. Soft commodities have shown even greater strength, with corn, wheat, coffee up around 50% for the year while cotton has nearly doubled in price.

What the heck is going on ? I've been following and trading commodities for most of my adult life and while I have seen moves like these in the past, this universal commodity boom, where virtually every commodity runs at once, is a brand new phenomenon.

A virtual chorus of analysts, economists and mainstream media are explaining this massive upswing in prices using all the same buzz words about recovering economies, emerging market demand growth, and sliding dollar.

All of these trends are undoubtedly true, but not even the combined effect of all three of these can explain the insanely powerful inflation we've seen in commodities this year (and are likely to see in the coming year).

Has there been a devastating drought in any of the three largest cotton producing countries: China, the U.S. and India? Only such a natural disaster would have accounted for a doubling of prices that we have seen, at least in the last 25 years that I have followed cotton trading. Has such a natural disaster accompanied the 50% rise in corn, wheat or coffee?

No. None of these commodities are being moved by disasters, nor are they moved by intense industrial growth projections for the last year or the next that are still well under even average historic levels and appropriate for a global economy just now beginning to recover from the worst slowdown since 1932.

[WeldonsRight]

Spot on! Swishing all that funny money around Wall Street and the big investment banks creates a lot of commissions and bonuses. They, in turn, stuff the pockets of their favorite politicians to keep the music playing. Meanwhile, my socks and undies double in price. I suppose we can get our pitchforks and go to D.C. to protest...oh, wait, gasoline will be $4.00 per gallon...

[arthurus]

Not a commodity boom so much as a dollar bust.

[Presbyterian Reporter]

Weak dollar?

____

The dollar is not weak relative to other currencies because all countries are printing their respective currency 24/7.

The result of increased phony money is that it has to go someplace.

Right now the newly printed money is going into things that are relatively scarce—copper, gold, oil.

I am not sure why it is going into wheat, corn, cotton etc as there does not seem to be a worldwide shortage.

But maybe the money folks are betting on global cooling and the impact it could have on foodstuffs.

[Presbyterian Reporter]

The US Dollar index was 78 at the beginning of 2010 and the index is 79.4 today.

Thus relative to the basket of currencies that compare to the US dollar index, the US Dollar is stronger today than it was one year ago.