Soft Commodity Prices in Weather-Related Surge

A host of soft commodity prices have climbed in recent months, driven by weather-related damage and rising climate risks around the globe, resulting in tighter supplies. 

Futures contracts on orange juice, raw sugar, and cocoa each hit their highs for the year this month. All are in supply-driven bull markets right now. 

Orange juice has shot up due to a short worldwide citrus supply and hurricanes last fall that hit Florida, the mainproducer of orange juice in the U.S. Major global exporters, including Brazil and Mexico, also lowered their estimated orange crop yields for the year due to warmer temperatures making harvests more challenging.

The juice futures market reached a record $3.50 per pound this month. Raw sugar and cocoa prices have skyrocketed in recent months. Sugar futures reached 27.62 cents per pound last week, the highest in over a decade, while cocoa futures soared to $3,763 per metric ton this month, also the highest level in over ten years.

Prices for sugar shot up earlier this year as rising demand combined with downward crop revisions from key producing countries such as India and Thailand, resulting from extreme weather. 

The S&P GSCI Softs index, a sub-index of the S&P GSCI commodities index that measures only soft commodities, has jumped more than 18% so far this year. Soft commodities in particular are very fragile and very sensitive to weather change, which can disrupt production. Soft commodity investors should account for adverse weather in future investment plans.