Are Agriculture Commodities Preparing for a Super Cycle?

It is surely a matter of debate whether we are in the early stages of a super cycle. Most of the Agricultural commodities traded at NCDEX have shown noticeable price appreciation year on year. Edible oils like Crude Palm Oil and Refined Soya oil are establishing life time highs continuously and similar price action is being observed in edible oilseeds like soybean and mustard seed.

Year on Year the price gains till date is highest for the oil complex basket with Crude Palm Oil appreciating by 76 percent followed by 67 percent in Refined Soya oil. Likewise, Soybean and RM seed prices have climbed by 92 percent and 90 percent respectively.

Cotton prices have strengthened by 30 percent while castor prices have moved up by 25 percent for the same time period. Globally, commodities like Soybean, Soya oil. Palm oil, Cotton and Maize etc. have showed sharp appreciation in prices. A surge in Agro commodity prices globally has generated the idea of the arrival of what may be a new super cycle i.e. an extended period during which demand drives prices constantly.

Agricultural commodities geared up for super cycle

A commodity super cycle is a sustained phase of abnormally strong demand growth and which makes it difficult for the producers to match the supplies against the rising consumption. This eventually triggers a long lasting upward price movement, which can even last for years and in some cases a decade or even more.

Commodities have experienced roughly four comparable cycles since the start of the 20th century. U.S. industrialization gave rise to the first super cycle in the early 1900’s, followed by another such cycle in the 1930’s. The reindustrialization and reconstruction of Europe and Japan following the Second World War stimulated the third cycle during the 1950’s and 1960’s.The fourth or the recent super cycle was the 2000’s commodities boom or the commodities super cycle.

This era marked a rise of many physical commodity prices (such as those of food, oil, metals, chemicals, fuels and the like) during the early 21st century (2000–2014)following the Great Commodities Depression of the 1980s and 1990s. The boom was largely due to the rising demand from emerging markets suchas the BRIC countries (i.e. Brazil, Russia, India, China, and South Africa), particularly China during the period from 1992 to 2013.

Since late 2020, we have seen cross-commodity demand improvement in China and monetary stimulus measures given by most governments. As the world recovers from the pandemic, we see commitments from various governments to maintain the economic support. This will be positive for the commodity prices, in all. Major central banks around the globe have responded promptly to the Covid pandemic and came out with a combination of unconventional monetary and fiscal policies, which indicates that inflation is rising, hence beneficial for commodity prices.

Rising global trend

Demand for agricultural commodities like soybeans, corn, or animal products are expected to improve further globally. China’s consumption is set to improve further. Also, various countries have rolled out long-term plans to create strong food reserves amid the supply chain disruptions due to the Covid crisis. Concerns over the rising US debt levels and current account deficit have pressured the US dollar and the dollar may depreciate further in coming years. Most of the agricultural commodities are produced in emerging markets and usually priced in dollar terms. Therefore, a weaker dollar will be positive for the commodities. All these factors do indicate that the Agricultural commodities are preparing for a super cycle.