Commodities, from grain to oil, are losing ground, and hedge funds are betting on further declines.
Commodity prices are falling from all-time highs as investors cancel bullish bets on everything from corn to copper to oil amid recession fears gripping financial markets.
On Wednesday, Brent fell below $100 a barrel for the first time since April, down 29% from its recent peak. Other markets are also seeing significant declines, with the S&P GSCI Agricultural Price Index down 28% from a record high in mid-May, and the London Metal Exchange benchmark, which tracks half a dozen industrial metals, has lost a third of its value since its peak in March.
Such a sharp drop comes against the backdrop of tightening monetary policy by major central banks, which are raising interest rates in an attempt to stop the rapid inflation. Investors fear that rising borrowing costs will undermine the global economy after rapid price increases led to a cost-of-living crisis.
There is a sharp reversal from the soaring prices in commodity markets in early 2022, when prices rose due to the recovery from the pandemic, lack of investment in new energy and mining assets, and supply disruptions exacerbated by the conflict in Ukraine.
Hedge funds have played a major role in the recent decline in commodity prices by selling long positions in certain commodities and often replacing them with bearish bets.
While the physical supply of many commodities is still limited, „hedge funds are taking chips off the table, [they] are leading the way in massive liquidation flows,” said David Whitcomb, head of research at Peak Trading Research.