Commodities Futures And Inflation: What Investors Need To Know

Over the last year, key commodity futures have risen sharply.

• Wheat futures have gained 48% year-over-year to levels not seen since 2013.
• Soybean futures are up 87% since last year to levels not seen since mid-2013.
• Corn futures are up 124% year-over-year to levels not seen since 2013.
• Lumber futures are up 491% year-over-year, hitting all-time highs 70% ahead of the previous peak seen in 2020.  

Why Have Commodity Prices Risen So Sharply?

Commodity futures shift with supply shocks and outlook, and demand. Supply chains and weather are key factors that affect this.

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Wheat prices have increased largely due to supply disruptions. In the fourth quarter of 2020, adverse weather in Argentina and Ukraine caused supply shocks to wheat production.

Further price increases are also a sign that traders are expecting supply constraints to continue. While production is expected to increase 1.7% this season, consumption will likely outpace it at a growth rate of 4.4%, according to the World Bank’s April 2021 Commodity Outlook Report. 

Soy and corn production shortfalls last season in the U.S. and South America stunted supply. Additionally, China is stockpiling these commodities to meet demand for soybean and corn to fuel a recovery from an African Swine Flu outbreak in the country in 2018-2020 that led to a 50% drop in the country’s swine herd.

Increased demand for wood amid supply shocks caused by production issues related to COVID-19 and a harmful beetle species that tarnished forests in Canada — a large source of U.S. lumber imports — has caused lumber prices to skyrocket.

The increased demand for lumber can be attributed to people turning to DIY projects to kill time during last year’s lockdowns, as well as lower interest rates that increased U.S. housing demand.

What Does This Mean For Inflation?

Wheat, soy, corn and lumber are essential commodities that affect a variety of industries.

Many people see commodity price increases as a sign of inflation, possibly resulting in price increases at grocery stores and gas stations.

These price surges will likely taper off in the next year, as they were driven by a multitude of negative externalities that happened to coincide with each other, The World Bank said in a late April press release.

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