Looking back over the past century, economic recessions have more often than not been preceded by a sharp rise in oil prices, as seen in the first half of 2022.
Farmers and grain marketers should be looking to the energy market as a leading indicator for where other commodities are headed, according to a market analyst who consults with credit unions and lending institutions across Canada.
“If we look, seven out of the last nine recessions were caused by high oil, and recessions have a tendency to bring down our commodity prices, particularly our wheat, corn, soybeans, canola,” says Brad Magnusson of Magnusson Consulting, speaking with RealAgriculture following his market outlook presentation at St. Jean Farm Days in St. Jean-Baptiste, Man., last week.
Following the market highs of early 2022, he makes the case that the world is on the backside of a commodity supercycle, with prices for most commodities headed lower into a period of recession.
“If we go all the way back to the early 1800s, and study the cycles, usually where we come off the high in the market, we come down for a certain amount of months, say four to six months, then we bounce a little bit and then generally we’re on that downward trend. And probably that downward trend is going to last three to four years,” says Magnusson.
As for high interest rates and inflation, he expects both will last longer than most expect.
“Canada’s first of all is going to follow the (U.S.) Fed, and I still believe the Fed has another 25 basis points (to hike rates), even though we’ve seen some reducing of the Consumer Price Index,” says Magnusson. “I do believe, though, and I think this is a key takeaway, that we’re looking at having interest rates higher for longer. In other words, we’re going to have inflation higher than we thought we were going to.”
Check out the interview below, recorded at the 2023 edition of St. Jean Farm Days, for more with Brad Magnusson on where we’re at in the commodity supercycle and his thoughts on where markets are headed:
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