The Future is Hot

I tend to avoid making market calls (its a no-win game), but I did make an off-hand prediction about the pepper market two years ago:

World production shortfall pushes prices of pepper to new heights

KUCHING: Malaysian pepper prices, which soared by nearly 30% last year, are expected to remain firm in 2011 and 2012 due to projected decline in world production.

Malaysian Pepper Board director-general Grunsin Ayom said that based on International Pepper Community's (IPC) forecast, world production would dip by about 2% to 309,952 tonnes this year compared to an estimated 316,380 tonnes (251,980 tonnes for black and 64,400 tonnes for white) harvested by more than a dozen producing countries in 2010.

“The IPC has projected a global shortfall of nearly 45,000 tonnes in 2011 compared to 53,000 tonnes last year,'' he said.

Grunsin Ayom ... ‘It is highly possible for white pepper prices to break the RM20,000 per tonne mark this year.’ Last year's world production dropped by 0.71% to an estimated 316,380 tonnes, down from 318,662 tonnes in 2009...

Grunsin said Malaysian black and white pepper closed at their highest price levels of RM12,100 per tonne and RM19,500 per tonne in 2010 against RM9,350 per tonne and RM15,300 per tonne in 2009 or an increase of nearly 30% and 27% respectively.

“It is highly possible for white pepper prices to break the RM20,000 per tonne mark this year. The prices for both black and white will remain firm in the next one to two years.

“Farmers are more secured financially and this enables them to hold on to their stocks for better prices.

“However, we can expect seasonal price movements when the major producing countries harvest their new crops. Other factors that will affect the prices are the strength of the US dollar and recovery of the world economy,'' he added.

Grunsin said the abnormally wet weather had caused the delay in crop harvest in most countries, including Malaysia.

At the time, I was looking at volatility in commodity prices in terms of gold, but pepper struck me almost immediately as a bull market in the waiting – it has these huge, consistent, 5 year up and down cycles going back to the 1970s, both against currencies as well as gold, probably related to weather cycles. Now of course it looks like pepper’s in the terminal phase of the upswing – I’d look for a breach of the RM20,000 level but once past that, it’s probably time to get out of the market.