Commodity Markets Focus
CME Group offers the widest range of global benchmark products across all major asset classes, including a suite of futures, options, and cash. At CME Group, we also provide access to OTC markets, help optimize portfolios, analyze data, and help manage risk.
Bullish commodities markets are feeding inflation fear – manage this risk with CME Group futures
- Commodity markets, representing the price of major raw materials, food and energy, are an important component of global inflation.
- One of the benefits which Investors can use commodities for is inflation protection
- Commodities are one of the few asset classes that tend to benefit from rising inflation, and unexpected increases in inflation expectations
- Commodities can be a lead indicator of future inflation trends
- Therefore, commodities can provide a hedge for traditional portfolios which otherwise may be negatively impacted by rising Inflation
- We are currently seeing a rising risk of sustained inflation in the US and other developed nations
- Amidst this backdrop, the Bloomberg Commodity Index of spot commodity prices recently hit an all-time high closing price on October 25th 2021
Firms can manage this risk using CME Group Energy, Metals, and Agriculture futures and options or by trading the leading commodity indices with Bloomberg Commodity Index futures and S&P GSCI futures.
Agriculture
Agriculture is tied very closely to food, and food inflation is very closely watched by governments all around the world:
- The FAO Food Price Index (FFPI) averaged 133.2 points in October 2021, up 3.9 points (3.0 percent) from September and 31.8 points (31.3 percent) from October 2020 (Source:- FAO)
- US food inflation is still on the upswing, rising 1.2% in September. (Source:- Bureau of Labour Statistics)
- CME Group edible oil prices, as represented by CBOT Soybean Oil futures and CME Palm Oil futures, have risen to record highs in 2021, with soybean oil breaking a 60-year record reaching 73.74 cents per pound on June 7 and palm oil hitting an all-time record of $1,203.25 per metric ton on October 20. Prices have more than doubled from a year ago.
- Edible oils are used in many commonly manufactured foods, ranging from fried foods, breads, and even chocolate.
- Edible oils are also used in the production of green fuels, such as biodiesel and renewable diesel. The strong interest for such clean, zero-carbon fuels have led to a major demand increase.
https://www.cmegroup.com/content/dam/cmegroup/education/images/2021/q4/commodity-futures-and-options-fig07.jpg
Source: CME Group
Energy
NYMEX WTI Crude Oil prices hit their highest level since 2014 during October 2021:
- Transportation fuel consumption rebounded sharply in 2021 with key countries relaxing travel restrictions.
- OPEC and its allies are keeping a cap on production while US production has not yet returned to its pre-COVID level.
- As producers are investing more into renewable energies, the supply might remain tight in the near futures, pushing prices up.
WTI crude oil – the world most liquid oil futures – reached its highest price since November 2014 in October this year.
https://www.cmegroup.com/content/dam/cmegroup/education/images/2021/q4/commodity-futures-and-options-fig02.jpg
Source: CME Group
- Demand for gas and power rebounded as industries and goods consumption are picking up.
- Natural gas, coal - used for power generation – and electricity prices have experienced a sharp increase in recent months, feeding inflation.
- Several industries in Europe and Asia have already been forced to take measures to reduce their activity.
- A colder than usual Winter might stress further the supply/demand balance as natural gas inventories are seasonally low and demand from Asia is strong.
Henry Hub natural gas prices have more than doubled in the past few months on fear of supply shortage during this Winter (Oct-mar).
https://www.cmegroup.com/content/dam/cmegroup/education/images/2021/q4/commodity-futures-and-options-fig03.jpg
Source: CME Group
Metals
Industrial Metals, as a collective basket, are currently at all time high levels, and Copper prices have traditionally acted as a hedge against inflation
- COMEX Copper prices hit an all-time high in May 2021, and have been spurred on by:
- Rising consumer and industrial demand in the post-pandemic recovery – Copper is used in telecoms, utilities, construction, machinery, home appliances, cars
- Copper’s central part in the green energy transition, with usage in EVs and renewable energy sources
- Recent supply disruptions in the wake of the global energy crisis
- COMEX Copper is the most liquid electronic global benchmark for Copper derivatives trading
https://www.cmegroup.com/content/dam/cmegroup/education/images/2021/q4/commodity-futures-and-options-fig04.jpg
Source: CME Group
- COMEX Aluminum prices have hit all-time highs in 2021, spurred by a perfect storm of supply chain disruptions and rebounding demand
- COMEX Aluminum prices (ticker: ALI), are up over 40% YoY, with Average Daily Volumes in the contract increasing 184% YoY (through September)
https://www.cmegroup.com/content/dam/cmegroup/education/images/2021/q4/commodity-futures-and-options-fig05.jpg
Source: CME Group
Precious metals, often touted as a traditional inflation hedge, have struggled in 2021.
- Since hitting an all-time high price in August 2020, the historically strong (negative) correlation between Gold prices and inflation adjusted yields, appeared to weaken during the summer months of 2021
- Ultimately, high inflation can increase the attractiveness of non-yielding assets such as gold
- Recent continued strength in inflation prints in the US has given the gold market some tailwinds and resulted in a 20% build in COMEX GC open interest in the month following from 12th October 2021
- The start of the previous rate hike cycle in December 2015 marked a near 6-year low in the Gold market
- COMEX Gold is still the world’s largest derivatives market for Gold and the center of global price discovery, with over $40 billion of notional trading daily
https://www.cmegroup.com/content/dam/cmegroup/education/images/2021/q4/commodity-futures-and-options-fig06.jpg
Source: CME Group
Around-the-clock support to navigate challenging markets
Global Command Center (GCC) is the market operations and customer service desk for electronic trading and handles inquiries, issues, and support requests from CME Globex and CME ClearPort customers 24 hours a day.
Regional numbers:
US: +1 800 438 8616
EMEA: +44 20 7623 4747
APAC: +65 6532 5010
For general, non-urgent questions, please email GCC at gcc@cmegroup.com.
Email all clearing inquiries to Clearing Client Services at ccs@cmegroup.com.
If you have any questions relating to respective commodity products, please contact
energy@cmegroup.com
metals@cmegroup.com
agriculture@cmegroup.com
* All figures based on CME Group data unless otherwise stated.