The 7 C’s of Commodities: Peter Borish’s Inflation Barometer

In an era of complex financial models and esoteric economic indicators, Peter Borish has long championed a refreshingly straightforward approach to gauging inflationary pressures: the 7 C’s of Commodities. This basket of seven essential goods—coffee, corn, cotton, copper, crude oil, cocoa, and cattle—serves as a real-world, tangible barometer of the global economy’s health and a potential leading indicator of inflation. For Borish, the collective price action of these commodities provides a clearer signal than the often-conflicting noise emanating from traditional economic data. It is a tool born from his deep understanding of market history and his belief that the most effective insights are often the most direct.

The Economic Significance of the 7 C’s

The 7 C’s are not an arbitrary collection of commodities. Each one plays a vital role in the global economy, and their price movements can have far-reaching consequences.

• Coffee: A staple consumer good, the price of coffee can be a sensitive indicator of consumer demand and discretionary spending.
• Corn: A primary food source for both humans and livestock, corn is a key input in the global food supply chain. Its price can have a significant impact on food inflation.
• Cotton: A important raw material for the textile and apparel industries, cotton prices are a reflection of global manufacturing activity and consumer demand for clothing.
• Copper: Often referred to as “Dr. Copper” for its purported ability to predict the health of the global economy, copper is a vital component in construction, electronics, and a wide range of industrial applications.
• Crude Oil: The lifeblood of the modern economy, the price of crude oil affects everything from transportation costs to the price of plastics. It is the single most important commodity in the world.
• Cocoa: While perhaps less essential than the other C’s, cocoa is a significant agricultural commodity and its price can be a useful indicator of consumer sentiment and demand for luxury goods.
• Cattle: As a primary source of protein, cattle prices are a key component of food inflation and can be influenced by factors such as feed costs (i.e., corn) and consumer demand.

The Collective Signal

Borish’s thesis is not that the price movement of any single commodity is a reliable indicator of inflation. Rather, it is the collective movement of all seven C’s that provides the most effective signal. When all, or most, of these commodities are moving in the same direction, it suggests a broad-based shift in the underlying economic fundamentals. A simultaneous rise in the 7 C’s can be a strong indication that inflationary pressures are building, as demand for a wide range of goods is outstripping supply. Conversely, a simultaneous decline can be a sign of a slowing economy and disinflationary or deflationary pressures.

Historical Examples

Throughout his career, Borish has used the 7 C’s to navigate major market shifts. In the period leading up to the inflationary surge of the 1970s, for example, many of these commodities experienced significant price increases. More recently, the sharp rise in the 7 C’s in the post-COVID era was a clear warning sign that the massive fiscal and monetary stimulus was beginning to translate into real-world inflation.

Incorporating the 7 C’s into Your Trading

For the modern trader, the 7 C’s can be a valuable addition to their analytical toolkit. Here are a few ways to incorporate this analysis into your own trading:

• Create a 7 C’s Index: A simple way to track the collective movement of the 7 C’s is to create a custom index that gives equal weight to each commodity. This can provide a quick, at-a-glance view of the overall trend.
• Look for Confirmation: The 7 C’s can be used as a confirmation tool for other economic indicators. If, for example, the Consumer Price Index (CPI) is rising, and the 7 C’s are also in a strong uptrend, it provides a higher degree of confidence that inflation is a real and persistent threat.
• Identify Intermarket Relationships: The 7 C’s can also be used to identify intermarket relationships. For example, a sharp rise in the price of crude oil can have a negative impact on the airline and transportation sectors. A rise in corn prices can be a headwind for companies that use corn as a primary input, such as ethanol producers and food companies.

Peter Borish’s 7 C’s of Commodities is a effective reminder that in the complex world of financial markets, sometimes the simplest tools are the most effective. By focusing on the real-world prices of essential goods, traders can gain a valuable edge in anticipating major shifts in the economic landscape.