These Commodities are Headed Higher in 2014 …

Will China overtake the U.S. as the world’s superpower?

It’s a question the world thinkers – and investors – have been asking and analyzing for the better part of the last decade. A recent poll by the Pew Research Center indicates a majority of people across the globe certainly think China will soon be No. 1.

Of course, many Americans refuse to think that. Wishful thinking? Maybe.

But facts are facts, and the facts are that the Chinese economy has begun to overtake the U.S. economy in a number of key areas. It’s now the largest automobile market in the world, is on pace to become the world’s largest e-commerce market by the end of this year, and in 2014 is expected to overtake the U.S. as the largest market for consumption of food and beverage ingredients.

That last statistic is of particular interest to me because it points to a profit opportunity that I’ve been writing about for years and which others in the West don’t quite understand: The rise of the middle class outside the West, an increasing desire to consume and the knock-on effect that must have on our lives here at home.

You see, the West hasn’t grasped what’s happening with urbanization in other parts of the world, such as China and other emerging and frontier economies. As jobs evaporate here and monetary chieftains sap the value from currencies like the U.S. dollar, it’s hard to believe the world is a wealthier place. But spend some time in the developing world as I do every year, and you’ll understand why the 21st century belongs to Asia, parts of Africa, the Middle East and Latin America.

Each year through 2030, roughly 30 million people combined will join the middle class in those markets. And if there’s one truism about people with rising incomes, it’s that they use their extra yuan, peso, ringgits and dirham in pursuit of more, better and more-convenient food options. That’s more than half a billion new people in the next 20 years with the money to afford a better diet.

The problem we face is two-fold:

First, more people in pursuit of roughly the same quantity of food ingredients necessarily raises the price of those ingredients – the most basic of the supply-demand laws. Second, hungry people who want better food often want food that, itself, is hungry, too. Pigs, chickens, sheep, lambs, cows, goats, fish – they all demand their own meals, multiple times a day, before they make it onto the dinner plates of Asians, Africans, Middle Easterners and Latin Americans all seeking greater amounts of protein in their diets.

Feeding those creatures takes a large quantity of food in its own right. And certain types of food – namely, the grains necessary to feed the various animals that comprise the rapidly expanding global protein chain – are facing higher demand, which, over time, puts upward pressure on prices for soft commodities like wheat, soy, corn and the like.

A Reemerging Super-Bull Market …

After more than a century of decline, food-commodity prices began to rise in 2001 in response to the accumulating wealth, rising incomes and improving living conditions across the world’s developing economies – a super-bull market in commodities that has three or four more decades to play out.

Lots of commentators say the commodity bull market dies with the global financial crisis. They are simply ignorant of the impact the rising middle class is having – and will continue to have – on soft-commodity demand.

We are already seeing a reemergence of the commodity super-bull market. Look at agricultural commodity charts and you will see that they quickly resumed their upward trend after a temporary stumble during the global crisis. Even more interesting is the fact that they resumed that upward trend even as the U.S. and European economies lagged, the clearest indication possible that the emerging markets have a huge impact on commodity prices now.

Imagine what will happen in coming months as the economies in Europe, the U.S. and China all improve at the same time (and all are improving right now) …

Mark my words: Soft-commodity prices are set for another leg higher, starting in 2014.

Until next time, stay Sovereign …

Jeff D. Opdyke