• Hard and soft commodities have come under pressure amid a deteriorating global growth landscape (remember: no demand = no backlogs/shortages!).
• Agriculture has fared better than the Industrial Metals index, but these popular trades over recent months are seeing near-term bearish action.
• Long-term, bullish factors remain in place despite near-term downside risks...

Crude oil catches most of the fanfare when it comes to commodities. Energy represents more than 60% of the Invesco DB Commodity Index Tracking Fund (DBC). What’s happening in other niches of the commodity space is concerning for the global growth picture. Agriculture and industrial metals, in particular, have seen sharp pullbacks.

ETFs Tracking Ag & Metals

Two popular funds tracking Ag and base metals include the Invesco DB Agriculture ETF (DBA) and the Invesco DB Base Metals ETF (DBB). Both ag and industrial metals were popular plays in the first several months of the year amid surging inflation and heightened geopolitical risks. That trade might have turned a bit too crowded in the near term. Agricultural is in consolidation mode after ripping more than 15% through mid-April (as measured by the ETF) while base metals, more sensitive to global growth, has pulled back about 20% from its early March high.

GSCI Agriculture & Metals Indexes

Our featured charts below illustrate declines in what were popular investments over the first quarter of 2022. Still, the GSCI Agriculture index is holding up better than the GSCI Industrial Metals index. Ongoing food shortages and the Russia/Ukraine crisis led to record highs in the food index last issued a few weeks ago.

Featured Charts: Agriculture Commodities and industrial Metals Dipping

(Click on image to enlarge)

Our Global Cross Asset Market Monitor report, sent at the start of each week to clients, reviews the key macro happenings. And one important price trend that suggests a global growth scare is a correction in commodities. We still hold a bullish intermediate- and long-term view on commodities writ large, but there could be some downside as corporate earnings and GDP growth outlooks retreat.

Stagflation: What It Means to Ag & Metals

The reflation narrative is slipping. It’s turning into the stagflation story. Consider that Wednesday’s US CPI print was hotter than expected all while global economic growth forecasts are being trimmed. Sharply bearish investor sentiment led many folks to seek safety in commodities, but even major hard and soft assets are now seeing bearish price action. Correlations are turning to one during recent volatility spikes.

Eyeing Support

Look for potential support on the Ag ETF near its November 2021 high. That level was initially rejected in January, but then it climbed above it in February. As for the base metals fund, its prior range lows from last September through December could be the next stop.

Bottom Line: Commodities now struggle with the two-way narrative of extreme supply shortages but also waning demand due to downside global GDP growth risks. Agriculture looks better than industrial metals right now. For now, we assert there is a long-term bullish thesis intact for commodities, but cyclically-sensitive assets may see more near-term pain.