Commodity Prices 2011

by Dan Harrington on April 6, 2011

Commodity Market Report: Overview of 2011 Commodity Price Upward Pressures and Trends

Crude oil just hit a two-year high and major fund investors continue to look favorably toward emerging markets and see a continued steady rise in a range of commodity prices. Energy prices in February of 2011 rose 28% from the previous year.

Commodity prices are likely to continue to increase, led by oil, as the United States heads into the peak driving season of summer.

Rising Trend For Oil Continues Due To Emerging Markets Driving Demand, Political Turmoil in Middle East and North Africa

The markets are clearly in a rising trend for oil and most analysts predict that this will continue well into 2012 due to a variety of reasons including rising demand by emerging markets such as Latin America, China, Brazil, Russia and India.

Unrest in North Africa and the Middle East has exacerbated an already tight supply situation. In the last six months crude oil futures in New York have risen 30%

Some Analysts Predict Oil Will Reach Historic Highs

While oil still has not topped the high of $147.27 which occurred in July of 2008, many analysts believe that price level is a distinct possibility within the next year or two, particularly if there are major supply disruptions due to unrest in major oil producing regions.

Emerging Markets Driving Commodity Demand

The large and growing middle classes in emerging economies like India and China are creating vast new demand for everything from cars to gourmet coffee driving up prices for a range of commodities including oil, and the rise in price of oil in turn effectively raises prices for virtually all commodities due to increased production and shipping costs.

Gold hit a record high in March of 2011 reaching $1,477.40 per ounce. Some analysts have predicted that gold will remain stable for a short time before it begins another upward spike along with many other commodities.

Commodity Prices 2011

Federal Reserve Blames Rising Commodity Prices On Emerging Market Demand, Others Blame Fed’s “Quantitative Easing”

Meanwhile the U.S. Federal Reserve recently claimed that its latest rounds of purchasing assets is not the cause of rising commodity prices.

Many of blamed the Fed’s “quantitative easing” and maintaining of low interest rates for driving huge amounts of investor money into commodity markets, further driving up commodity prices across the board in 2010 and now in 2011, while also contributing to the declining value of the U.S. dollar due to massive new debt incurred by the U.S. government.

The Fed claims that demand from emerging markets is the primary cause of commodity price increases. However some members of the Fed have admitted that rising worldwide commodity prices may in part be attributed to the highly accommodative policy of the central bank.

Cotton Prices Hit Record Highs Amid Low Stockpiles Driving Up Cotton Commodity Prices

Meanwhile cotton prices have hit record highs and a shirt on a store shelf today was likely made with cotton that cost half of what cotton costs today. With stockpiles now depleted the price will be more vulnerable to any new supply disruptions.

Many agricultural commodities have suffered from disappointing harvests due to inclement weather, and this comes at a time of rapidly rising demand from emerging markets like China where cotton demand increased 86% in 2010. In the final quarter of 2010 the GDP of Indonesia was almost 7% with a large and growing middle class that is creating vast amounts of new demand for products.

Agricultural commodity prices are now about 17% higher than the highs they attained at the peak of 2008.

Commodity Prices 2011 continued:

Sugar crops in major growing areas have also suffered bad harvests leading to higher prices and depleted stockpiles. The global demand for sugar is forecasted to rise 1.7% while the amount of current stocks as compared to sugar consumption has reached a 20-year low.

Arabica Coffee Bean Shortage Driving Up Coffee Prices

Coffee prices have been spiraling upward and green coffee beans (unroasted coffee beans) stockpiles are at a 40-year low after a year of high demand and lower production in major coffee growing regions like Brazil (the major Arabica coffee bean producer) and Colombia as well as a host of other countries including Vietnam, Mexico, India, Costa Rica, Guatemala, Uganda, Panama and Kenya.

Bad weather as well as coffee plant diseases and pests have hurt coffee harvests, which is symptomatic of what is going on with many crops causing significant upward pressure on commodity prices.

Coffee prices – which just hit a forty-year high – are just one of a whole range of commodities that have been rising in the last year with no end in sight.

Thank You for Reading Commodity Prices 2011 and Visiting Gourmet Coffee Lovers! Love Your Coffee and Espresso!

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