2021: COVID And Commodities: Supply And Demand Will Break COVID, Make Commodities

A look at at the supply and demand fundamentals of COVID says the pandemic’s end is fast approaching. Traders are already “selling” COVID and buying their favorite commodities.

COVID related headlines are filled with the recent surge of cases nationwide that is stressing the physical and emotional capacities of medical personnel, affected families, and even news journalists tirelessly reporting on the pandemic.

There can be no doubt that just about every person around the globe has been affected one way or another by the Pandemic, and many people are thinking about it all the time. Financial professionals have been trying from the outset to determine what path various markets will take based upon the twists and turns the COVID story takes each day, week and month. Commodities traders are no different; they are an analytic lot that tends to look past all but the numbers when assessing markets and formulating a picture of what the future might look like.

What matters most to commodities markets is the supply/demand balance – or imbalance – that will evolve over time in any given commodity market. Traders will jump on any opportunity to sell a commodity in an oversupply situation and they’ll buy a commodity that is undersupplied. In this context, it seems traders have come to the conclusion that COVID will soon be in an oversupply situation relative to demand.

The nation’s foremost expert, Dr. Anthony Fauci, seems to agree; he has gone on record saying there will likely be a “return to normalcy” by late 2021 and further, that herd immunity could well be reached in the United States by late summer. Fauci was setting a timeline in the context of the deployment of COVID vaccines, but he’s hedging his bets according to commodities traders, who are also looking at something called “seroprevalence” data on the CDC website in their efforts to create a supply/demand analysis for COVID.

The material on the CDC website is dated; most of the published seroprevalence studies were done in the first several months of the COVID crisis here in the U.S. But the numbers are eye-popping. CDC studies in Connecticut from April 26, 2020 through July 27, 2020 showed that the number of COVID cases that actually occurred across the population versus actual positive COVID test cases detected ranged between four and six times higher than the positive test numbers. Seroprevalence tests were done not only in Connecticut, but also in Louisiana, Minnesota, Missouri, New York City, Philadelphia, San Francisco, South Florida, Utah and Western Washington State for SARS-CoV-2 antibodies. In each and every case study, the number of estimated COVID infections exceeded the number of positive test results, sometimes by an incredible 23 times as in Missouri when samples were taken between April 20-26, 2020. The low multiple was 2 times, in Utah during several test periods during May and June 2020.

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What all of this means is that more people are actually getting COVID than what is being detected and reported each day. In fact, the CDC is reporting that the seven day moving average number of new COVID cases in the US as of December 28, 2020 is just under 180,000. That’s a pace of over 1.2 million new cases detected per week. Even if one uses the low 2x multiple found in Utah as cited above, that means nearly 2.5 million people a week are actually contracting COVID. That’s nearly 10 million people per month.

How do traders formulate a supply/demand picture for COVID? Commodities traders see the above numbers and they think the demand for COVID, that is the number of people that have not yet been infected or vaccinated, is shrinking every day, week and month. Shrinking demand means excess supply, which means a declining market for COVID. Commodities traders know the clock is clearly ticking towards COVID’s demise.

Conversely, traders are betting that commodities of most types will likely benefit from a return to post pandemic normalcy; there will likely be higher demand as the economy emerges from lockdowns and travel restrictions. Commodities of all types are already being bid higher, especially crude oil and industrial metals. This trend is likely to continue, and even accelerate as we enter and progress through 2021.

Traders are “selling” COVID and buying whatever they think will benefit from the return to normalcy that’s fast approaching. As bad as the COVID surge is right now, COVID is about to be in the rear view mirror, and commodities traders are already positioning themselves for a post pandemic world.

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