The prices of key 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. Coffee and orange juice prices have also risen to their highest level in more than a year.
The shortages – because of 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 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.
That concentration of output in a small group of countries also means supply disruptions are more likely to have a big impact on prices.
Cocoa prices surged in New York last week to a near 31-year high, up 28.5 per cent from January. Sugar hit a 28½-year high, up 165 per cent this year.
Tobin Gorey, a soft commodities analyst at JP Morgan in London said: “The supply disruptions have been exacerbated by generally low inventories.”
He added that sugar and cocoa prices were poised to increase still more in the early part of next year.
Cocoa is an extreme example of the current output problems among soft commodities.
The cocoa market is heading into its fourth consecutive year of shortfalls – the longest run of shortages since 1965-69.
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.
Czarnikow, the sugar broker, recently forecast the 2009-10 sugar deficit at 13.5m tonnes, following a shortfall of 15.8m tonnes in 2008-09. Bench-mark tea prices reached an all-time high just before Christmas, after rising more than 80 per cent since January.
Van Rees, the Netherlands-based tea traders, said there was “some reason to expect a fairly buoyant [tea] market in the first quarter of next year”.
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.
Bad weather has driven orange juice almost 90 per cent higher this year.
