The Rally in Commodities: Who You Callin' Crazy?

by Nico Isaac
Updated: October 28, 2021

For many commodities investors, 2020-1 might feel like the opening scene of the cinematic, tour de comedic force The Hangover. But, instead of waking up on the floor of a Bangkok hotel room amidst all sorts of outrageous party favors with no memory of how you got there...

...commodity-goers have woken up to an all-inclusive "super rally" in everything from coffee to copper to lumber to rubber -- with a very unclear sense of how in the world prices got here!

For mainstreamers, the commodity comeback has defied all fundamental logic, which logically assumes a pandemic-fueled economic crisis should be grizzly bearish for materials used in building, food production, and fueling an economy.

Yet -- instead commodity prices soared leaving the experts to one conclusion: namely, the bullish run is flat out chaotic, uncertain, and crazy as these news headlines reflect:

"Making Sense of the Chaos in Commodity Markets" (Oct. 2 the Economist)

"Another Uncertain Year for Commodities on Unpredictable Weather, Trade Policy Changes" (Oct. 4 Edgemarkets.com)

"What's Really Driving the Crazy Rally in Commodities?" (Oct. 25 Yahoo)

As one Yahoo Finance explains:

"Bulls are pointing to the surging metals prices as evidence a supercycle is alive and well.

"However, no one but a snake oil salesman would suggest that what we are seeing is anything healthy."

Said another: The Commodity supercycle is being driven by "air pockets of foolishness." (Sept. 20 AgriNews)

In fact, we'd argue that what we're seeing in commodity markets since mid-2020 is completely healthy; namely, a healthy, predictable outcome of investor psychology, which unfolds with both rhyme and reason as Elliott wave patterns on price charts.

Take, for example, this price chart of soybeans. As you can see, the grain's trend turned up in May 2020, propelling prices to their highest level in nearly 9 years, one year later in May 2021 before reversing.

It warrants reminding that the same pundits perplexed by the reality of "beans in their teens" today were confident in the grain's grim future back in early 2020 when the pandemic was just beginning.

Just before soybean prices launched into orbit, the grain belt faced unanswered questions -- namely, how much crop to grow ahead of global demand changes, a trade war with China, and so on. A March 16, 2020 Farm Lead article warned the ag market faced a lethal combination:

"As these are unknown times, there is obviously a lot of fear in the market and accordingly, things get volatile, but mainly, fear is a price killer"

And this from a March 17 Economic Times: "Soybeans Gains Capped by Coronavirus Worries"

The mainstream outlook for soybeans was bleak: Uncertainty-plus-fear would equal certain price death. And yet -- the grain instead rallied to levels last seen in 2014.

Again, totally cuckoo from a fundamental perspective.

But this bullish scenario was exactly what our March 2020 Monthly Commodity Junctures called for. There, editor Jeffrey Kennedy outlined the year ahead for soybean prices on this chart, and called for a game-changing breakout:

"I believe we put in a very significant low back in 2019 and we will indeed advance.

I'm now expecting a larger five-wave structure to the upside, ideally up to $11 a bushel by the time we move into the end of the year. Bottom line, I like the upside."

From there, beans took off to the upside. By December, prices stood at $12 a bushel, exceeding the initial Elliott wave target. Capping off the new year, the January 2021 Monthly Commodity Junctures revisited soybeans, where Jeffrey raised his upside price target while warning that the rally was "late in the game."

"We will see this advance continue higher. The objective I have for this year is $15.19."

By May, beans surpassed $14 a bushel, their highest level in 8-and-a-half years and the bullish "game" had reached its ninth inning. The May 2021 Monthly Commodity Junctures showed this chart of soybeans and said a "down sequence" was due:

Next -- soybeans sizzling rally cooled to the multi-month lows we see today.

There's another memorable scene from the Hangover. In it, Phil asks Dr. Valsh for directions to a chapel only to be met with this reply:

"It's at the corner of get a map and [BLEEP] off."

Asking mainstream analysts for directions in the world's leading commodity markets can ring similar!

Elliott wave analysis understands the clues to future price moves are right in front of you -- all the time. And nobody presents a more comprehensive overview of where these markets may be in the days, weeks, and months ahead than our complete, Commodity Junctures Service.

See below to begin.