This year of the pandemic tested individuals, government, and the medical profession, in addition to business small and large and the supply chains we often take for granted. It was a perfect year to highlight how supply and demand work and to also demonstrate how so many sectors of our economy are tied together.
“There were times when we had supportive news in the first half of the year, but we could not get the commodities to rally because the funds had a bearish view of the commodities sector and so they interpreted any news that we got through that bearish lens,” says Arlan Suderman, Chief Commodities Economist for StoneX. “The last half of the year they interpreted that same news through bullish lenses, and so the money flow really opened up.”
Equities and commodities certainly had their peaks and valleys and then peaks again in 2020. Equities continue near records, but momentum is waning, and Suderman said traders see commodities as very attractive.
“So, we have some days when the equities are struggling, albeit at relatively high levels, but the commodities continued to push higher and the Thomson Reuters Continuous Commodity Index has broken to new 6-year highs now, broken out of the range that had contained it for much of the last 6 years.”
Suderman believes the Phase I trade deal signed at the beginning of the year gave China political license to purchase ag goods it really needed from the United States. Some of the Chinese purchases should continue.
“We do anticipate that trade with China will probably continue to be strong in the near-term, fulfilling the needs that China has, but with pork decreasing, soybeans probably remaining strong, there are serious questions about whether corn will be strong yet now or if it’ll have to wait 2 to 3 years while the Chinese Communist Party needs to be convinced that they cannot supply all they need on their own.”
In 2021 coronavirus and various new mutations remain with us and are a risk, especially if new strains would resist the vaccines. Suderman also sees the possibility of more environmental regulations coming from the new Administration, and if they affect the fossil fuel industry that could pose risk to the corn ethanol industry.