The recent decline in commodity prices resembles a downhill mountain biking expedition.

The price drop has been so severe that we’ve seen a nearly one-sided market, with buyers largely absent in futures, commodity indices, and exchange-traded funds (ETFs). As a result, many commodity hedge funds have closed and are returning capital, despite their ability to trade short.

Indeed, we knew it was getting serious when the phrase “market correction” was slowly replaced by the word “carnage.”

Yet, if you believe in the commodity super cycle – defined as the decades-long price movements in a wide range of commodities – then this shouldn’t have been entirely surprising.

In fact, you likely expected it, albeit not so soon.

Commodity super cycles have been building and unwinding since the late 1800s, according to the collected data on commodity prices. But why do these cycles occur? Are they some sort of trading pattern embedded in the human psyche, or is it purely coincidence?

It’s neither, actually. You see, they’re supported by structural reasoning and economic logic.

The commodities cycle exists because it takes time – roughly 15 to 20 years – to construct, say, an aluminum smelter, and get it up and running. Or to dig and develop a copper or gold mine and extract, refine, and market the ore.

And for their part, offshore rigs require years of exploration before any drilling actually occurs. Even then, drilling typically takes place once prices have begun to rally, which incentivizes producers to increase output.

The latest super cycle was interrupted during the financial crisis but continued its upward trajectory soon afterward. In fact, the Commodity Price Index of the International Monetary Fund rose 400% from 2000 to 2008 until the crisis.

And when the crisis came to an end, it was the commodity sector that was the first to recover from its depressed state, long before the equity and fixed income markets took off.

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