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The lead the currency lent to commodities — October 2010

Episode

The extreme

Something about the commodity lead that month didn't add up. Raw materials measured in reais climbed to the most stretched point of the whole structure, unseating the cyclicals that September had left at the top. By the raw reading, it was renewed appetite for exporters. But the clue was in a number nobody associates with commodities: the currency closed at the strongest real in the entire series recorded up to then. And a strong real doesn't move the raw material — it moves the ruler that measures it. In numbers: the Commodities (R$)/IBOV ratio jumped from 1.23 to 2.45 (Δ +1.22), the highest point in the ranking; the currency at R$ 1.6835, against R$ 1.77 in July; the cyclical axis gave back almost two deviations, from 2.92 to 1.18.

What happened next

For two months, the disguise worked. In January 2011 commodities deepened their lead — the ratio in reais rose even further, from 2.33 to 2.76, and the dollar version followed. Anyone who read that as raw-material strength had the impression confirmed. But April already brought the first crack: commodities held only a slim lead (Δ +0.26), while real estate funds stole the stage. And then came the currency's verdict. In October 2011, with the real back at R$ 1.77 — the same level as July 2010 — the Commodities/IBOV ratio collapsed from a neutral z, 0.09, to -1.77. Raw materials began to weigh less than the broad index. The premium of a year earlier didn't just vanish: it turned into a discount.

What did not happen

The October 2010 peak did not usher in an era of commodities. It looked like the beginning — January reinforced the thesis, with the z in reais rising to 2.76. But it was not structural leadership of the raw material; it was a currency top dressed up as appetite. Anyone who mistook the strong real for exporter demand bought a premium the currency was lending and would charge back. Twelve months later, the ratio was negative.

The honest verdict

The engine measured the extreme with precision — z 2.45 is territory the series rarely sustains. What it didn't separate was the source of the strength: the ratio in reais adds two things, the price of the commodity and the strength of the real, and that October the second did more work than the first. Measuring the stretch is easy. Knowing how much of it is currency requires looking at the exchange rate before applauding the commodity.

Continue reading: Commodities in reais · The commodity surge that was currency · The end of the commodity reign →

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Characters: Commodities · Dollar