By David Randall

NEW YORK (Reuters) – Investors are rushing to recalibrate their portfolios for a potentially extended period of elevated commodity prices, as Russia’s invasion of Ukraine sparks eye-popping moves in raw materials that threaten to exacerbate inflation and hurt growth.

Over the past few weeks commodities have seen wild moves as a result of the conflict in Ukraine and the subsequent sanctions against Russia. Oil prices rose to new highs, reaching 14-year records and close to record levels. The wheat prices are at all time highs and the nickel price has doubled since last week, forcing the London Metals Exchange not to trade the metal. [L2N2VE09Q][L2N2VE0JL]

With the U.S. economy already feeling the stress of a broad, post-COVID-19 boost in demand and a quick resolution to the West’s standoff with Russia in doubt, some investors are betting high commodity prices are likely to remain for the foreseeable future.

A total of $10.5 billion was sent to commodities-focused mutual funds by investors since January 1, including a $2.8 Billion gain over the past week, which is the largest single-week positive outflow since July 2020. According to ICI data,

“This is a very unique environment that we’re in because you have both demand shocks and supply shocks to the system at the same time,” said Eric Marshall, a portfolio manager at Hodges Capital.

Marshall predicts strong demand for commodities, even as geopolitical tensions ease. He believes this is because factors like the production of electric cars, which require metals such copper or nickel, will fuel increased interest in these commodities. According to Marshall, the U.S. Infrastructure Bill, worth $1 trillion, has increased demand for steel, cement, and other commodities.

He plans to increase his holdings in the steel producer Cleveland Cliffs Inc. and other agricultural companies. Tyson Foods Inc (NYSE®:) and Archer Daniels Midland, (NYSE®:) Co. While cutting jobs in consumer businesses most susceptible to be affected by higher materials and gas prices, Inc is not the only company that will suffer.

The Federal Reserve and other central bank members are under increased pressure to increase monetary policy tightening and fighting inflation due to the massive rise in commodities. There are growing concerns about the impact of rising commodities on economic growth.

Investors expect the Fed’s first rate rise since 2018. They will do so at its next monetary policy meeting. This year, they have already priced in 1.75 points of tightening. According to data this week, consumer prices increased at an unprecedented pace in the last month of 40 years. [L2N2VC2QK][FEDWATCH]

Matthew Schwab is the portfolio manager for Harbor Capital All-Weather Inflation Focus ETF. He has also increased his exposure oil futures and metals futures. He said that prices for industrial metals will likely remain high because of the underproduction from the coronavirus epidemic, but oil companies seem content to trade less production to get higher prices.

Schwab explained that you can clearly see signs of a rally in commodity prices due to the dearth of investments over the past decade.

Mark Khalamayzer has been the Columbia Commodity Strategy Fund’s Lead Manager. His fund prospectus states that he has increased his exposure of oil and agricultural commodities as a bet that Ukraine’s conflict will cause prices to spiral higher.

It settled Friday at $112.67 per barrel and has increased 44% from the start of this year.

Investors are trying to adjust their portfolios to higher prices for raw materials, but they worry about the impact on growth of a rally in commodities.

Robert Schein, Blanke Schein Wealth Management chief investment officer said that the risk of recession caused by sharp cuts in consumer spending increases the longer oil prices remain high.

According to him, “if oil prices are above $100/barrel for a few more months the consumer and economy will be able to withstand it. However, if prices rise $100/barrel for over six months then we’ll see a surge in recession risk,”