BOOM: Commodity markets are down in the past year, but some smaller commodities have seen a standout performance, from cocoa (+60%) to sugar (+45%) and uranium (+35%). But none has come close to the orange juice (+100%) rally that has taken it into uncharted territory over $4.00/lb and to near twice its prior all-time highs. The rise is fundamentally propelled by supply disruption, may worsen with an intensifying El Nino, and has no quick fix with inventories low and orange trees taking 4-15 years to mature. But it’s a high-wire act with thin trading liquidity, already high investor interest, and consumers with substitute breakfast drinking options.
OJ: The big OJ price squeeze of 2023 has been driven by shrinking supplies from dominant producers Brazil (70% of total), Mexico (11%), and especially the US (6%). All have been hit by a combination of weather disruption and spreading citrus-greening disease. Global supplies fell 7% in the past year to 1.5 million tonnes, with US production down by a third. This has come as overall demand has remained flat, with secular weakness in Europe and the US offset by strong emerging market growth from China and big OJ producers Brazil and Mexico. Whilst global inventories have fallen four fifths in recent years giving little flexibility to handle any disruption.
‘BREAKFAST BASKET’: Rising breakfast commodity prices will inexorably feed down the supply chain to hit the supermarket shelves. This is a looming threat to the recent falls in consumer food prices that have helped drive lower inflation. Our equal-weight basket of nine popular breakfast items has surged 25% this year vs a 3% fall for the Bloomberg commodity index. Gains this year are led by OJ (+100%), cocoa (+60%), sugar (45%), oats (+15%), pork (+15%). This more than offset lower wheat (-25%), milk (-10%), coffee (-4%), and tea (-2%).
All data, figures & charts are valid as of 02/11/2023.