Shortages propel tea, cocoa and other soft commodities prices to historic highs

by Dave

Financial crisis or not, 3.5 billion people in India, China and Vietnam need to eat and drink every day – in an uncertain world, it is one of the few certainties. As they get richer, they will eat and drink more, no matter if according to some worst case scenarios, global stock markets entirely collapse and there is a second great depression in the coming decade. Soft commodity investments will also hedge against any resulting fiat currency devaluations. Investing in the soft commodity sector in Latin America could be one of the best moves in the next few years.

The prices of soft commodities – including tea, cocoa and sugar – have jumped to multi-decade highs, boosted by supply shortages and robust demand. The rises are set to translate into higher retail prices early next year, according to analysts. The shortagesdue to bad weather and a persistent lack of investment – have started to attract financial investors into soft commodities, further boosting prices.

Production of many of these soft commodities is concentrated in a small group of developing countries, mostly in tropical areas prone to output troubles caused by a combination of bad weather, political unrest, credit shortages and the inability of small farmers to respond to rising prices.

Sugar hit a 28½-year high, up 165 per cent this year.In the sugar market, prices have been driven higher by strong demand from India, the world’s second-biggest producer, which has experienced a crop failure and has tapped the global sugar market at the moment heavy rains have curtailed output in Brazil.

Coffee prices are up 30 per cent this year, with high quality arabica trading at levels seen only briefly in the past 11 years. Hussein Allidina, head of commodities research at Morgan Stanley, said the rally was due to low production in Brazil, Vietnam, and Colombia, which account for 60 per cent of global output.

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