A lack of farmland and rising costs means growers will fail to keep up with demand, said Aaron Smith, managing director of Superfund Financial (Hong Kong) Ltd. and Superfund USA Inc. Commodities account for about 40 percent of Superfund’s $1.25 billion assets under management. Smith correctly predicted record copper prices in November and a month later rightly anticipated that silver would outperform gold.
A United Nations index of world food prices jumped to a record last month, contributing to riots across northern Africa and the Middle East that already toppled leaders in Egypt and Tunisia. Global food security is threatened by “excessive price volatility and speculation,” farm ministers from 48 countries said in a joint statement after meeting in Berlin in January.
“There’s a tremendous shortage of food, there’s a tremendous shortage of arable land,” Smith said in interview in London. “Any kind of food products are going to increase.”
Coffee jumped more than fivefold in the two years through July 1994 and more than tripled from February 2002 to March 2005. Sugar prices rose fourfold from June 2002 to February 2006 and more than tripled from June 2007 to February last year. Cocoa advanced 242 percent from December 2000 to January 2003.
Price GainsArabica coffee traded on ICE Futures U.S. in New York almost doubled in the past year and traded at $2.663 a pound at 7:33 a.m. local time. Raw-sugar futures advanced 51 percent to 27.03 cents a pound, while cocoa is little changed at $2,960 a metric ton.
Coffee prices jumped after wet weather damaged crops in Colombia and on forecasts for a smaller harvest in Brazil, the world’s largest exporter. Sugar gained after floods in Pakistan and Australia and cocoa advanced as fighting after elections in November disrupted exports from Ivory Coast, the largest grower.
Superfund, founded in Vienna in 1995, specializes in so- called managed futures, using its own trading system to buy and sell commodities and currency futures, stocks and bonds. It has a 24-hour trading operation in Chicago, Smith said.
The U.S. consumer price index rose 0.5 percent in February, the most since June 2009. Asian countries from China to Indonesia raised interest rates this year to curb inflation. European inflation quickened to 2.6 percent in March, the fastest since October 2008 and above the European Central Bank’s 2 percent limit.
The commodity bull market may last for 15 to 20 years, Smith said in July 2008. The Standard & Poor’s GSCI Index of 24 commodities, which that month dropped as much as 66 percent through February 2009, is still 20 percent below its 2008 peak.
Wheat traded in Chicago is down 8.7 percent this year and sugar has dropped 16 percent. Global sugar production may exceed demand for the first time in four years if “normal weather conditions” return to the biggest growing nations, broker and researcher Jonathan Kingsman said last month.
Access to water, higher labor costs and rising incomes are also issues for food commodities, Smith said.
“There’s about 7 billion people in the world,” he said. “When you have that many people, it only takes tens of millions of people to move up a market that’s so small like sugar.”