Commodity Markets Face Big Supply Questions

The first four months of 2022 have seen a lot of upward pressure in several commodity markets. Global Commodity Analytics Persident Mike Zuzolo says there are a lot of negative demand features in place.

“The trade just can't get a bearing on what the supply is, so they don't know if the demand is being rationed aggressively enough at this point because they don't know if the supply has stopped going down yet. What I mean by that is avian influenza, that High Path Avian Influenza, it's in 20-some states, at this point, in the United States. We've got a hog herd that is shrinking as of the March Hogs and Pigs Report on the quarterly numbers. We've got a cattle supply and a cattle herd that is seeing a drop, almost weekly, of one to three pounds on a dressed basis. And I think we're only about four or five pounds above where we were a year ago. And this is the beginning of what could be one of the worst droughts in cattle country.”

Zuzolo talks about the possibility that the U.S. might have to ration certain exports if supply-side challenges continue…

“… because this is a supply cost-push, weather-induced, inflationary move, and even the war in Ukraine is more supply-lead than it is demand-lead, I still feel as though that the first half of the calendar year of 2022 is the best time for grain hedgers to get their hedges in place. And yes, I do think they need hedges in place because it's not demand-led and that we are, I think, on track for a recession, a higher probability greater than 50 percent, by the fourth quarter of this year.”