Pump jacks and wells at an oil field on the Monterey Shale formation in California. 
Pump jacks and wells at an oil field on the Monterey Shale formation in California.  - 
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The S&P 500 index is down less than 1 percent from last year, but an index of global commodities is down more than 30 percent. You name it: cotton, oil, sugar, nickel, wheat.

This downturn comes after a long, long commodities party, which has some wondering if the hangover will last just as long.

This bust goes back a ways, to a commodity boom that started around 2000. You may know the story: China went modern. It bought soybeans to feed pigs to feed people. And iron ore for steel. And coal for power.

“Definitely a super cycle,” says futures broker Pratik Patel of tradefutures4less.com. “You saw the prices rally, and they stayed higher for a very long time. Even when prices dipped, buyers would step in and markets would rally back up.”

There’s a history of super cycles, according to economist Bilge Erten of Northeastern University. In a recent paper, she found long commodity booms often were built on colossal demand: from the U.S. reconstructing itself after the Civil War, and from Europe and Japan rebuilding after World War II.

Commodity super cycles since 1960. See the darkest line.
Commodity super cycles since 1960. See the darkest line. - 

Then they ended, Erten says, just as China’s industrial peak has come and is going, too. 

“In the future, it won’t be China that’s going to be demanding more and more commodities,” Erten says. “So there doesn’t seem to be another country that’s going to be another powerhouse, that’s going to demand all these commodities.”

She figures prices may stay low for a while. Producers of commodities like copper, silver and coffee have overinvested and produced oversupplies. And in the oil market, too many drillers are hanging on. So the glut continues.

“Now we are in the downturn for only about three years,” Erten says. “It could last another five to 10 years, potentially, in terms of the historical trend.”

If that’s the case, the big resource countries that partied the last decade — Australia, Brazil, the oil states — will have to find something else to sell in the next.

 

Follow Scott Tong at @tongscott