A closely watched commodity index marked an important milestone last week, signaling that fresh fund flows could provide the tailwind grain and soy bulls have been waiting for.
The Bloomberg Spot Commodity Index extended its rally last week, notching the 38th instance over the past year in which it registered a new 252-day high (there are roughly 252 trading days in a year), said Dean Christians, founder of Turning Point Market Research, in a note. Christians observed that the index has accomplished that feat only 11 other times in history. He noted that, as shown in the chart below, when the rolling count reaches 38, the index has historically generated an annualized return of 14.3%, more than double its long-term average return of 6.5%.
The 2026 commodity rally has, of course, been led by the energy sector, with Brent and WTI crude trading back above $100 a barrel on fears the U.S.-Israel war with Iran will keep the Strait of Hormuz largely closed for an extended period. Fuel and fertilizer costs have soared, pinching producer margins. Grain and soy complex futures have rallied, partly on weather concerns as well as the building of a war premium, but have lagged behind the jump in input costs so far.
Inflation fears stemming from those rising fuel costs and the potential for a fertilizer crunch to weigh on production of nutrient-intensive crops if not spark a longer term global food shortage, have appeared to spark heavy buying by hedge funds and other large speculators, analysts said. Concerns over the condition of the U.S. wheat crop, favorable seasonals, upside momentum and other factors have also likely helped attract fund-buying interest.
A bearish to bullish regime change for ag markets
Christians, a quantitative analyst and former institutional trader who uses proprietary systematic models to find price-driven trend signals, observed in a separate note last week that the simultaneous gains by corn, wheat and soybean futures pointed to a shift from a bearish to bullish regime for the agricultural complex, as measured by the S&P GSCI Spot Agriculture Index. The index tracks Kansas wheat, Chicago wheat, corn, soybeans, cotton, coffee, sugar and cocoa. Kansas wheat and corn have the heaviest weighting followed by soybeans.
Corn, wheat and soybeans have each reached a 100% trend composite reading — a single, summarized score combining multiple trend indicators to show the overall market direction — for the first time since May 2022, Christians wrote, noting that when at least two of the three grain trend composites register 100%, the S&P GSCI Spot Agriculture Index has historically generated a 30.3% annualized return. That far exceeds the average annualized return of 3.6% seen when just one commodity reaches 100% and holds true across all observations since 1969, he said. The index’s average annualized return for all periods since 1969 is 3.6%.
“Outside of the post-WWII era through the late 1960s, agricultural commodities have seldom traded sideways for long,” Christians noted. “When trends emerge, upside cycles tend to accelerate quickly.”
He found that since 1968, the index has seen nine up cycles, which produced an average return of 138% and a median return of 100%. And the gains for the S&P GSCI Spot Agriculture Index outperformed the S&P 500 each time, suggesting that periods of agricultural commodity strength have often lined up with macroeconomic backdrops that were less supportive to the equity benchmark — a phenomenon that Christians said could possibly be explained by a concurrent rise in inflation and bond yields during those periods. Christians last fall flagged a breakout in the Bloomberg Spot Commodity Index that signaled tentative prospects for a sustained rally, albeit with the potential for volatility.
Fund longs spark fears of speculative overstretch
Fears the fertilizer crunch will result in a longer-term surge in food prices could spark further speculative flows into agricultural futures as the commodity rally continues to broaden out. At the same time, extreme long or short speculative positions can foster fears the market has become overstretched. The latest Commodity Futures Trading Commission Commitments of Traders report issued Friday showed that managed money had expanded their record net long position in soybean oil futures to 165,725 contracts. Speculators also added to net longs in corn and across the wheat complex, while trimming positions in soybeans. Overall, exposure across the agricultural complex is seen at multi-year highs.
Hillari Mason: Stay disciplined — What to keep in mind as grain, soy complex rally picks up steam
War headlines, planting progress and weather will of course have much to say about market performance, but it does appear that for now inflation jitters and macroeconomic uncertainty are translating into a widening commodity rally.
The ‘wider commodity-inflation cycle’
Ole Hansen, head of commodity strategy at Saxo Bank, noted that the Bloomberg Commodity Total Return Index delivered a 4.2% monthly gain in April, bringing its year-to-date return to 30% with all sectors except precious metals posting positive returns.
Energy remained in the driver’s seat, as oil and fuel prices pushed to new highs in late April on expectations for a lengthy closure of the Strait of Hormuz.The energy sector rose 7.7% in April, following a 40.7% March rise that’s left it higher by 74% year to date.
“Top individual performers included Brent crude, cotton, gasoline, diesel and soybean oil, while gains in wheat and copper highlighted how support is broadening beyond the hydrocarbon sector,” Hansen said. “In many ways, April marked the clearest sign yet that what began as an oil shock is developing into a wider commodity inflation cycle, driven by supply-chain disruption, rising transport costs, fertilizer shortages and growing uncertainty around monetary policy and currency markets,” he said.
Check out this week’s Pro Farmer newsletter for our take on the broadening commodity rally and why it requires producers to remain nimble in their marketing plans.