Tight Supplies Pushing Commodities Higher; Portugal Runs out of Sugar

Montreal, Canada

Breakfast used to be inexpensive. Not anymore…

Increasingly, farmers will struggle to meet the growing demand for grains and soft agricultural commodities. Several foodstuffs are now in record territory as we shortly close out 2010 and more will turn into net supply deficit as the world continues to outgrow its food supplies.

In 2008, farmers aggressively substituted low-paying crops for soybeans and wheat as prices skyrocketed ahead of the credit crisis. That strategy, mostly at the expense of corn, saw a big shift in yields twelve months later as soybeans and wheat prices tanked.

Farmers know the big trend better than anyone. And in 2008, they saw bigger bucks planting more wheat and soybeans. But heading into 2011, we might be at the cusp of big shortages because of erratic weather patterns just about everywhere.

This week alone, for example, Portugal briefly ran out of sugar. Sugar supplies remained tight after a poor crop in Brazil – the world’s biggest exporter. Australia and India, for different reasons, have also seen sugar exports tumble. Sugar quoted on the New York ICE contract for March delivery hit a 30-year high on Monday.

Arabica coffee beans also touched a 13 ½ year high this week following reports that Colombia’s crop yield was expected to be much lower than projected at 8.1 million bags of beans – a 35-year low.

One of the biggest and most unpredictable wildcards in this agricultural bull market is Mother Nature. Weather patterns have been extremely volatile this year with adverse growing conditions impacting traditionally strong growing markets in Russia, Australia, Ukraine, Colombia, Brazil, Canada and, to a lesser extent, the United States.

High grain prices are especially long-term bullish for seed companies and fertilizer stocks. The race to boost yields amid a growing population that finds itself outgrowing food supplies is tipping this sector into bull market territory.

With the holidays upon us, I want to wish my readers a happy, healthy and prosperous 2011 and all the very best for the holidays. Dugald and I enjoy bringing our market commentary to you every day; I know there’s an abundance of information and choice out there; we appreciate your loyalty.

Merry Christmas!

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