Frenzied trading floor, Chicago Mercantile Exchange. (Photo by Michael L. Abramson/Getty Images)
Commodities are now so out of fashion with investors that it seems likely they’ll rally soon.
The investing asset class, which includes energy, foodstuffs and resources, is yet again the only category that has seen consistent outflows from fund investments (exchange-traded fund and mutual funds) over the past five weeks, according to the Investment Company Institute which tracks the data.
In the five weeks through September 20, which is the latest data, fund investors dumped $1.6 billion dollars over the period.
No other category, including bond funds, stocks funds, and hybrid funds, saw constant redemptions. Its also true that none saw consistent inflows either.
Still, the week after week patter pf commodities investments shows a distinct pessimism from fund investors over the prospects for solid returns from the commodities asset class.
Investors often dub extreme bearishness on an asset class a contrary indicator meaning that the more people think that prices will fall the more likely it is that they will actually rise.
If that rule of thumb is to be believed then we can expect a price rally in much of the sector.
And some experts seem to think we are there already. There are a couple of sweet spots.
First, there are predictions that the forming winter will be colder this year that it was.
“Along with above-normal snow, we’ll see normal to colder-than-normal temperatures in areas that typically receive snow,” stats the Old Farmers Almanac, their emphasis.
The first thing that should hit most people is that the forecast is for “normal to colder-than-usual temperatures.” That may sound benign, but it likely is not.
Last winter’s weather was unseasonably mild, and that helped keep natural gas prices lower than they would other wise have been. If the weather is just normal this coming winter than natural gas prices may get a boost.
Natural gas prices were recently $2.93 per million British thermal units, down from a high of $7.49 last November, according to data from TradingEconomics. While prices may not get back to their previous high is looks more than probable that they lift a bit from their recent level when the cooler weather returns.
Overall, commodities look like they are likely to rebound, a recent report from Hackett Financial Advisors, a Boca Raton-based company. Among other things, the research headlines the following three likely strong spots in the agricultural sector.
- “Time to Buy December 2024 Corn for Long Term Hedgers/Traders”
- “Sugar and Cocoa Are Both Set Up for Potential Historic Blow Off Tops”
- “Wheat Complex in an Ideal Position for a Major Low and Impulsive Move to the Upsdie-SRW CBOT Wheat the Market to Play”
The author, Shawn Hackett, elaborates on the topic, as follows:
- “If Brazil and the U.S. both come up short as we believe the probabilities favor, then we will have a very serious corn shortage on our hands.”
Short of grains, which includes wheat corn and soybeans would likely mean higher prices. And given the importance of both Brazil and the U.S. the rally in prices could be significant.
On top of that food exports from India a key producer looks likely to drive prices even higher. The commodities in question are rice, wheat and sugar. Also the country is importing milk, an unprecedented move, according to Hackett.
All in all, it means commodities are likely getting ready for a major rally.
