Agri-Commodities May Surge Most as the Buck Slumps
In yesterday’s blog I explained why I believe energy prices are heading higher, but it’s not just crude oil and natural gas that are set to outperform – commodities are set to enjoy an across the board surge to the upside again.
And the policy response in fighting the credit crunch correction has a lot to do with soaring natural resources in my view.
Gold recently topped $700 per ounce, a fresh 16-month high, and it’s now taking aim at multi-decade highs set last year – perhaps on its way to $1,000 during this next secular move.
Silver, copper and other metals prices are also swinging higher, as persistent industrial demand from emerging economies squeezes global supplies.
Even agricultural commodities are getting in gear to the upside this summer – and this sector in particular might hold the best profit potential going forward.
Agri-Commodities is Where “Prices Have Moved the Least”
Wheat has more than doubled in the past year, hitting new record highs, as dry weather threatens crops from Australia to Argentina. Corn is of course a key ingredient (although not all that fuel-efficient) in the production of ethanol in the U.S. – and as gasoline prices rise – so has corn surged 51% higher in price.
As a result, U.S. food makers such as Sara Lee and General Mills are hiking prices to keep up – that box of Cheerios will get even more expensive. In China, the soaring cost of food is Beijing’s primary concern, fearful that surging inflation may spark social unrest.
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Even after these big recent gains, agricultural commodities in particular should still have a long way to go. Global investment guru Jim Rogers, who is a big bull on commodities said not long ago: “If I were looking at new opportunities now, I'd be looking at agriculture. That's where prices have moved least, that's where the opportunities are, that's where fundamentals are also changing. All these agricultural commodities are still very cheap on any historical basis.”
Demand for Commodities Heats Up, but the Slumping U.S. Dollar Plays a Big Role
One of the biggest reasons for soaring agricultural commodities is the same old story that’s driving energy, and metals higher: surging global demand.
Emerging economies especially have a growing “appetite” for all sorts of foods.
In fact, global stockpiles of wheat are projected to fall to a 26-year low according to the USDA – that’s in spite of record harvests in the U.S.
But there’s another key reason for surging commodities prices: the slumping value of the U.S. dollar! Yesterday, the dollar fell to a fresh all-time low against the euro, and the U.S. dollar index is threatening to plunge to lows not seen since 1992!
Since so many global commodities are priced in U.S. dollars, the sinking value of the greenback requires commodity producers to hike prices just to stay even!
Now, add in the unbalanced supply-demand equation that we’re seeing in so many resource markets, and the result is likely to be another round of steadily higher commodity prices ahead.
Better head to the grocery store and stock up now!
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