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Global Supply Disruptions: Coffee, Grains, and Protein


Outlook


ROLAND MORRIS: I think one of the surprising things in the commodity markets this year has been that commodity indexes in general have outperformed other asset classes year to date, and it's because of some of the unique supply disruptions we’ve had.  A very severe late season drought in Brazil created a significant rally in coffee, soybeans, and corn. Coffee was probably the most affected commodity.  It rallied about 40% to 50% during the drought.  It was because of two reasons.  Obviously, current supplies affected prices. Additionally there was some fear that the drought was going to impact next year's crop by damaging the trees.  Since then we've actually had some moderation in the prices across both grains because of expectations of a large U.S. crop, and coffee prices have moderated slightly because it looks like the damage isn't severe enough to impact next year's coffee crop. Brazil is the most important coffee producer in the world, and it certainly had a severe impact on prices this winter, but has moderated slightly since.


Protein


MORRIS: Another interesting supply disruption this year was caused by a virus in the U.S. hog population called PED virus. It impacted piglets; it is estimated that we lost over 8 million piglets over the winter and spring of this year.  There is hope that the virus has been contained. The virus created quite a sharp rally in hog prices. They were up over 40% during the peak of the virus and created some demand for other meats on a substitution basis.


At the same time we were trying to rebuild the cattle herd, which meant holding animals back from the cattle population for breeding purposes.  Those two things combined to create quite a rally in all protein markets because people move towards poultry when hog prices and cattle prices rose as much as they did.  Consumers are finding higher prices this summer for all protein products in U.S.  and the markets are responding to the high prices. We're looking like we'll likely get more normal herds by the start of next year. Indeed the forward price points in most of the protein markets have come back down and have moderated somewhat.


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