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Last year's bull run in commodities was led mainly by oil, grains and gold. This year we've had spectacular bull runs in the "soft" commodities, which include mainly, coffee, tea, cocoa, sugar and orange juice.
Tea is at an all-time high; cocoa is at a 30-year high; and sugar is at a 28.5-year high. Orange juice reached its highest price in 15 months. Tea prices for the best quality broken pekoe, or BP1, surged to a record $5.02 a kilogram, up 70% since January.
Last week New York's cocoa prices hit $3,412 per ton, up 28% and their highest close since 1980. Raw sugar prices in New York closed at 25 cents per pound. Coffee reached $1.45 per pound, up 30% this year. New York concentrated orange juice traded at $1.18 per pound, up 72% since January.
Why we are seeing these high prices? First of all, most of these commodities are grown in just a few countries, many of them near the equator where weather changes can have a dramatic effect on production. For example, with cocoa, 60% is grown in two countries: Ivory Coast and Ghana. In addition, cocoa consumption has outstripped supply for the past three years. Add to this the poor harvest in the Ivory Coast and you have the perfect scenario for a strong bull move.
In the case of sugar, El Niño has wrecked havoc on production. Brazil and India, the two biggest producers, have suffered crop damage this year. As for orange juice, prices have risen due to output losses in Brazil and Florida. For coffee, there have been crop losses in Columbia and fears of crop losses in Brazil.
So what does all of this mean? Plain and simple, expect higher prices for your morning coffee, orange juice, sugar, tea and cocoa.
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Reader Comments (Page 1 of 1)
10-27-2009 @ 11:35AM
william lindblad said...
You missed a couple of points.
Sugar comes from two sources - cane and beets.
Most of the beets come from the Western parts of the U.S. which are up to their ears in water supply problems - current & future. Most of the cane, came or comes, from Fla. The problem with cane is that the field must first be burned to rid it of the razor sharp leaves and this is accomplished with an accelerant, usually kero/fuel oil. It makes for a sky full of smoke and there is a lot of EPA pressures against it. That is why the cereal producers are for less restrictive duties on imports.
Plenty of oranges - not enough profit. They grow in Texas and Cal. also.
Onions grow primarily in Texas for the winter supply.
Texas had a major drought. Just another that has only one place to go - up.