Could Commodities Return To Normal?

Hot inflation pressures from excessive US fiscal and monetary policy responses to the 2020 COVID crisis supported commodity markets early in Q1. Moreover, Ukraine and Russia, together, represent a veritable commodity superstore, providing critical commodities to the world.

Roll yields became positive across the commodity complex for the first time in 15 years during the quarter. Commodities indices posted impressive returns for Q1 driven primarily by US inflationary pressures and Russia’s invasion. Market participants expect to see a short supply of commodities for several years.

Returns for commodity index products in the first quarter of 2022 were the best on record according to Ned Davis Research (NDR). Continued inflation pressures from excessive US fiscal and monetary policy responses to the 2020 COVID crisis supported commodity markets early in the first quarter.

Russia’s military invasion of Ukraine drove commodity prices even higher and, at times, panic buying pushed several commodities to unsustainable levels of volatility and price.

West Texas Intermediate crude oil traded as high as $130 per barrel before settling down closer to the $100 level by quarter end. Wheat traded around all-time highs of $13.50 per bushel before settling back down to the $11.00 level. Nickel traded 250% higher in a single day, forcing the London Metals Exchange (LME) to close the market for over a week.