Hot Commodities: Commodities as an Asset Class (Plus Cheap Girl Scout Cookies!)
(June 24, 2021)
The hottest commodity in 2021 may in fact be commodities themselves as an asset class. Commodity index funds, which represent the performance of an array of commodities, are becoming some of the strongest performing investment vehicles to choose from in 2021, outperforming the S&P 500 Index, S&P 500 Value Index, and Nasdaq this year. The need for commodities and the proverbial building blocks of life such as food, power, infrastructure and environment are required to rebuild the post-pandemic world, and are fueling the aforementioned strong returns. In our latest issue of Hot Commodities, we touch on a selection of these booming commodity markets from seafood and battery metals to our personal favorite – Girl Scout cookies! Dibs on the thin mints!
Battery Metals - Barriers To Renewable Power And Infrastructure
Renewable power related infrastructure, the growing electric vehicle industry, and our ever expanding suite of technology products, all rely on the essential battery metal mining industry. However, acquisition of the metals required is an uphill battle. There is a significant disconnect between investors that continue to show support for clean-tech startups, automotive companies, and battery manufacturers but not the smaller lithium and cobalt mining companies that fulfill their industrial supply chains. It is undeniable that mining will play a key role in the great energy and infrastructure transition, however as a result of the NIMBY (“not in my backyard”) attitude from investors and governments looking to maintain a squeaky clean and green image across their portfolio, a market rift has formed. In addition, the U.S. and Canadian governments have voiced national security concerns over China’s command of the market and potential to limit access to supply unless metal reserves are developed domestically. Overall, as a result of increasing demand and limited supply, prices for battery metals are leading the charge in a bullish commodity market in 2021 despite the industry’s apparent growing pains.
Commodity Markets are Going Bananas, But Don’t Forget About the Environment!
The bananas we know and love today are endangered… again. The banana was originally from the “cultivar” species and was resilient, did not require artificial ripening, and was overall a better, more flavorful fruit. It was the world’s main export banana until 1965 when it went extinct due to a fungal disease called “Panama”.
Today a new, but similar strain of the Panama disease from Malaysia called “Tropical Race 4” is endangering our bananas once more. The disease prevents uptake of water by attacking the plant’s vascular system. The “Cavendish” banana we know today is a monoculture with no genetic diversity and is susceptible to extinction by the fungal disease if it were to become widespread.
Although the disease has not spread past 2 plantations belonging to the major banana cultivation firm, Matanuska, it has already cost them $7.5 million, losing them 15,000 plants per week. Matanuska contributes $1.5 million per month to the local economy so the likely loss of livelihood is looming. The push towards increasingly stringent environmental and social governance (ESG) mandates by investors, individuals and governments has its tradeoffs, but overall supports a more well-nourished platform to produce commodities sustainably and profitably into the future.
Seafood - Is It Sustainable?
Unfortunately, one could aptly say that consumers are being ‘shellfish’ and incentivizing poor environmental practices when consuming seafood products, which translates to a higher price tag at the grocery store. According to a recent study by Sea Food Source, Sea Food Prices are projected to rise 70% by 2050, in large part due to a supply shortage caused by overfishing and depletion of ocean habitats including coral reefs. Fish prices alone are projected to increase by 48% which exceeds all other food categories including meat, which will only be up by 14% in 2050. This data is based on the comparative lack of new supply in fish products and consumption patterns researched in China , which could be presented as a harbinger for other large, populous countries such as India and the United States. These challenges to output growth will pressure aquaculture-focused seafood firms to substantially up their game to meet demand.
While seafood prices are rising, at least we can enjoy some comparatively budget-friendly Girl Scout cookies.
GIRL SCOUT COOKIES
The bright and motivated roster at Girl Scouts was challenged this year not only by reduced sales amid Covid-19, but also by a drastic decline in memberships. Membership count has fallen by over 30% to 1.7 million from their member count of 2.5 million last recorded in 2008. Fewer scouts and fewer in-person interactions have left a proverbial mountain of cookies left unsold. Although Girl Scouts CEO, Judith Batty applauds the skillful transition of scouts to online sales platforms, news agencies report 15 million boxes of unsold cookies, 12 million of which never left the agency’s bakery warehouses in Kentucky and Indiana. In contrast, Girl Scouts sell about 200 million boxes in a typical year at $5 a box. This presents a rare opportunity for cookie lovers to take an open long position on cookies, get their favorite sweets for cheap and support a great cause.
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-Editors, Alex Meleshko and Emily Shoemaker