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- Bloomberg Commodity Index looks soft
The Bloomberg Commodity Index (BCOM) has lost approximately 27% since its multi-year high in June 2022 – despite recovering a little from its low in February this year when it was even deeper in the red. At first glance this seems surprising: some key components of the index have performed positively or have, at least, held their ground. Gold, which is heavily weighted in the BCOM at nearly 17% of the index, has been a star, rising by around 30% since June 2022. Similarly, crude oil (both WTI and Brent) has performed better than the index as a whole, although oil, too, is down from its previous highs.[1]
However, there are commodities that have performed extremely poorly, ultimately contributing to the BCOM’s significant overall decline. One notable example is grains. The grains subindex is now down by approximately 40% from June 2022. This drastic fall represents a sharp reversal from 2022 when the prices for corn, wheat, and soybeans surged following Russia’s invasion of Ukraine, one of the world’s leading grain exporters. At that time wheat prices soared to their highest level since the Food and Agriculture Organization (FAO) began recording them in 1990.[2]
Grains subindex has often shown where Bloomberg Commodity Index may head
*indexed; 6/1/22=100
Sources: Bloomberg L.P., DWS Investment GmbH as of 7/23/24
This, however, encouraged cereal farmers to expand their area under cultivation and this and favorable weather means the market is now flooded. Brazil, for example, had a bountiful harvest of corn and soybeans last year, and Russia exported a record amount of wheat in 2023. Ukraine, meanwhile, managed to ship most of its own harvest despite Russia’s blockade of its Black Sea ports.[3]
According to Bloomberg’s calculations, grains are more volatile than other commodities. It is the most price elastic sector, and currently the price decline appears to be accelerating.
Our Chart of the Week shows the trend for the Bloomberg Grains Subindex, which often leads the BCOM commodity index. If this relationship continues to hold, it suggests there may be further downside potential for the broad commodity index. And speculative positioning, as reported weekly by the U.S. Commodity Futures Trading Commission, suggests that market participants foresee continued price declines for wheat.[4]
