Coffee, sugar and cocoa prices will rise five- to 10-fold by 2014 because of shortages that will mean consumers getting “swamped” by food inflation, according to Superfund Financial.
A lack of farmland and rising costs meant growers would fail to keep up with demand, said Aaron Smith, the managing director of Superfund Financial (Hong Kong) and Superfund USA.
Commodities account for about 40 percent of Superfund’s $1.25 billion (R8.54bn) in assets under management.
Smith correctly predicted record copper prices last November and a month later rightly anticipated that silver would outperform gold.
A UN index of world food prices jumped to a record last month, contributing to riots across north Africa and the Middle East that have toppled leaders in Egypt and Tunisia.
In a statement after a January meeting in Berlin, farm ministers from 48 countries said global food security was threatened by “excessive price volatility and speculation”.
“There’s a tremendous shortage of food, there’s a tremendous shortage of arable land,” Smith said. “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.
Arabica coffee traded on the ICE Futures US exchange in New York has almost doubled in the past year and traded at $2.648 a pound on Wednesday. Raw sugar futures have advanced 52 percent to 27.21c a pound, while cocoa has risen 0.6 percent to $2 987 a ton.
Coffee prices jumped after wet weather damaged crops in Colombia and on forecasts for a smaller harvest in Brazil, the largest exporter. Sugar gained after floods in Pakistan and Australia and cocoa advanced as fighting after elections in November disrupted exports from Ivory Coast.
Superfund specialises in so-called managed futures, using its trading system to buy and sell commodities and currency futures, stocks and bonds. It has a 24-hour trading operation in Chicago, according to Smith.
The US consumer price index rose 0.5 percent in February, the most since June 2009. Asian countries from China to Indonesia have raised interest rates this year to curb inflation.
Euro zone inflation sped up to 2.4 percent in February, the fastest pace in more than two years and above the European Central Bank’s 2 percent limit.
Access to water, higher labour costs and rising incomes were 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.”
World food production would have to rise by 70 percent by 2050 to meet increasing demand from a global population that was projected to expand from 6.9 billion now to 9.1 billion by 2050, Hiroyuki Konuma, the UN Food and Agriculture Organisation’s regional representative in Asia, said in Bangkok last month.
Food costs were at “dangerous levels” after pushing 44 million people into poverty since June, World Bank president Robert Zoellick said last month. That added to the more than 900 million people around the world who go hungry each day.
It was “an incredibly difficult humanitarian story because the poorest countries will be hit the hardest”, Smith said. “The average person is going to be swamped by food inflation. The new arms race is food and energy.”
An indirect way of betting on food prices was to buy gold, because it tended to do well when inflation accelerated, he said. – Bloomberg