A Closer Look at What’s Taken Place in Commodities Markets This Year

Commodity markets have been rallying broadly since 2016. Find out which ones have been leading the way, which ones have been lagging behind, and the implications for a company like Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR).

Following a historic slump that extended from the summer of 2014 into the beginning of 2016, commodity prices have been steadily on the rise over the past 12 months, with the Jeffries CRB index, one of the largest benchmarks for commodity prices, up 14% since last June 1.

A lot of those gains have been led by higher energy prices, but to be fair, it has, for the most part, been a fairly broad recovery, as Republican tax cuts have helped to stoke inflation, which has begun to spread across to international markets.

The price of West Texas Intermediate Crude (WTIC) has performed as well as almost any other, up 59% since the middle of June.

That’s done a lot to help the fates and fortunes of some of Canada’s exploration and production (E&P) companies, including the likes of MEG Energy Corp. (TSX: MEG), Baytex Energy Corp. (TSX: BTE)(NYSE: BTE), and Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG), all of which recorded particularly strong gains in April.

In fact, there are only a few commodities that have fared better over the past 12 months, but among them are soybean and nickel.

The price of soybean meal has risen 33.8% over the past 12 months and is up 22.1% year to date.

Nickel, meanwhile, has seen its price rise by 45.1% over the past year with most of those gains coming in the second half of 2017, up 8.3% so far in 2018.

Higher prices for soybeans, in addition to corn and grains like wheat and barley, which are up by a respective 12.3%, 28.8%, and 39% over the trailing 12-month period, are good for agribusinesses and put more money in farmers’ pockets, which can help to benefit companies like Deere & Company (NYSE: DE) and Tractor Supply Company (NASDAQ: TSCO).

It’s also good for fertilizer companies like Nutrien Ltd. (TSX: NTR)(NYSE: NTR), as the windfall that this year’s harvest could bring would allow farmers to invest more in next year’s crop.

If you’re looking for exposure to nickel, you could consider the likes of Australian-based BHP Billiton plc (ADR) (NYSE: BBL) or Brazilian firm Vale SA (ADR) (NYSE: VALE), but one of the more well-known Canadian nickel plays would have to be Sherritt International Corp. (TSX: S).

On the flip side of the coin, however, would have to be the prices for coffee and sugar.

While most commodities have seen their prices rise over the past 12 months, coffee prices have fallen about 14%, and sugar is down even more — down 25% over the past 12 months and down 12.9% so far in 2018.

While that may be unwelcome news for the producers of those raw materials, it does benefit companies that use those ingredients as part of their inputs.

Coffee makers, like Starbucks Corporation (NASDAQ: SBUX) and Restaurant Brands International Inc. (TSX: QSR)(NYSE: QSR), which owns the rights to Canada’s iconic Tim Hortons brand, could see their cost of goods sold reduced if the current trend in prices persists, as could several other food-packaging companies.

Bottom line

Commodity markets are notoriously cyclical, which can make them potentially dangerous plays, but if you can manage to get the timing down right, they also offer the potential for some of the most lucrative trades in your portfolio.

Foolish investors may want to be on the lookout for opportunities where a particular commodity has yet to participate in the broader recovery for market prices.

Fool contributor Jason Phillips has no position in any of the stocks mentioned. David Gardner owns shares of Starbucks. Tom Gardner owns shares of Starbucks. The Motley Fool owns shares of RESTAURANT BRANDS INTERNATIONAL INC and Starbucks. Nutrien and Starbucks are recommendations of Stock Advisor Canada.

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