Peter Sainsbury: Agflation is here to stay. How to play the agricultural commodity bull market

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Agricultural commodities look like they are beginning to see the start of a sustained bull market. First, precious metals, then base metals and now agriculture. Since the middle of 20202 soybeans and corn have increased by 55% with wheat registering a 35% gain.

Governments in Asia (China in particular) and in North Africa have been buying imported grains and pulses in an effort to build up their strategic reserves. Authorities in many countries made use of those reserves to dampen down domestic food prices during the pandemic, but now those reserves are running low.

Peter Sainsbury: Back to backwardation: Why the shape of the futures curve is positive for commodity prices in 2021

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The commodity futures curve has moved sharply over the past few months towards backwardation. This should increase the incentive for long side investors to park their funds in commodities and given numerous macro tailwinds (e.g. a weaker dollar, rising inflation expectations and infrastructure spending), set the market up for a promising 2021.

But first, a little bit of background on the futures curve. When the futures price curve is downward sloping, i.e. the futures price of a commodity in say six months’ time is lower than the current spot price, the market is said to be in backwardation. This is also known as an inverted curve or an inverted market.