The market standard commodities benchmark, the S&P GSCI, crushed it in 2021, rising 40.35% and outpacing other similar commodity indices and asset classes, as high and rising inflation provided a great backdrop for this inflation-sensitive asset class. Commodities finished strong in December, rising 7.59% over the month as energy bounced back and Omicron COVID-19 variant concerns were brushed aside, with global demand still humming. Supply chain bottlenecks are slowly easing, but freight costs around the world continue to be elevated, contributing to higher commodity prices.
With the highest weight in the S&P GSCI, the S&P GSCI Energy was responsible for most of the strong performance seen in December and throughout 2021. Every petroleum-based commodity rose by double-digit percentages in December and by at least 58% throughout the year. A combination of strong global demand and reduced oil production due to climate concerns helped petrol to post its strongest yearly performance since 1999. On the other hand, the S&P GSCI Natural Gas continued its decline, posting another 17.57% drop in December as warmer weather reduced demand for one of the main ways to heat buildings in the northern hemisphere.
The S&P GSCI Industrial Metals finished the year strong by rising 5.02% in December. The S&P GSCI Aluminum rose the most in 2021, by 38.43%. In a similar narrative to energy-related commodities, aluminum mining and production (which is typically carbon intensive) was curtailed while demand remained strong, especially for electric vehicles. This green transition friction caused prices to outperform the other industrial metals throughout the year. The S&P GSCI Zinc was the second-best performer, rising 28.03% in 2021 and showcasing an exceptionally strong December rise. Supply disruptions for aluminum and zinc are forecast to continue, with exchange warehouse inventories already low and more metal due to leave particularly from the London Metal Exchange.
The S&P GSCI Agriculture rose 24.70% in 2021. The most liquid corn, soy, and wheat commodities saw positive gains for the year, as weather-related supply disruptions were seen throughout the year, and demand came back strong compared to 2020. Incentivized by higher prices, more crop was planted but the demand side continued to prove to be a positive catalyst. The S&P GSCI Cocoa was the only constituent to show negative 2021 performance, at -6.27%. Its other soft commodity cousin, coffee, instead blew past all other agriculture commodities. The S&P GSCI Coffee beat crude oil with a positive 63.71% 2021 performance. It was the best yearly performance for coffee since 2010, the year several major studies were released in North America hyping the cancer-fighting and exercise-performance-enhancing benefits of a cup of coffee.
The S&P GSCI Livestock rose 7.9% in 2021, with lean hogs pulling the weight. Live cattle and feeder cattle prices were flat, but the S&P GSCI Lean Hogs rose 25.06% this year. Demand for pork was strong throughout the year and in another example of inflation everywhere, fast food prices rose considerably as bacon prices moved higher. The cost of a bacon, egg & cheese sandwich may continue to rise, with current high inflation seen broadly.
The S&P GSCI Precious Metals dropped 5.13% on the year as rates moved higher, market volatility came down, and demand for safe havens diminished. Gold’s historically strong inflation hedging ability and safe-haven status were challenged the most this year with crypto becoming prominent, and prices reflected this struggle.The posts on this blog are opinions, not advice. Please read our Disclaimers.