Many major central banks around the world have been printing money since the 2008 subprime crisis froze the global banking system. This massive amount of newly printed money is seeping out into the financial system and will likely cause a huge jump in the inflation rates around the world which can push commodity futures prices to new highs.
Many commodities are already showing signs of inflation around the world. Numerous commodities have already made multi-year highs over the very recent past. Sugar futures hit a 30 year high recently as the world went from a supply surplus to a deficit in the period of just two years.
Other commodities in the softs sector also hit multi-year highs. Cocoa futures prices hit 30 year highs as bad weather in the Ivory Coast hurt the world supply. Cotton prices just hit 2 year price highs because hot and dry weather in the U.S. Delta region is expected to hurt yields. Orange juice futures prices hit 2 year price highs earlier this year. Coffee futures recently hit 12 year highs as bad weather hurt the yields of last year’s coffee harvest in Brazil.
The grain sector also saw wheat and corn futures prices run higher. Wheat futures prices recently hit 2 year highs as the drought in Russia and excess moisture in Canada teamed up to potentially hurt wheat yields. Corn futures prices followed wheat prices higher because corn is a substitute for feed wheat for feeding livestock.
The precious metals sector saw gold prices hit all time highs as investors flee many markets in search of a potentially safe haven against inflation and economic turmoil. Gold is also considered a hedge against currency risk as many currencies have been devalued this year.
Once all of the newly printed currency is lent out to businesses and consumers around the world there will be a massive spike of inflation. This inflation rate will be very hard for central bankers to battle because most of these governments purchased toxic assets to save the banking system and need to keep interest rates low if they are to make money on those investments. Central banks historically battle inflation by raising interest rates.