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0 Mar 12 2014 @ 4:27pm by Matt Smith in Global Energy, Random, risk management

And Now For Something Completely Different…

Mooching through Commodityland™ I have once again been led down the garden path by energy-linked commodities, but just not in the typical sense. So read on to learn about sugar highs and caffeine buzzes, and other markets going oatso crazy.

First up, let’s take a look at one of my favorite sources of energy (well, my most needed): coffee.

A drought in Brazil is wreaking havoc on some of the country’s key commodities such as coffee and sugar. Brazil is both the world’s largest grower and exporter of these commodities, with the ongoing drought raising concerns about harvests, driving arabica coffee prices up 86% since the start of the year. Even though sugar prices are, um, going nuts, they were still crazier three years ago when they were double what they are now.

Brazil is a huge producer of agricultural commodities, and its drought could have huge ramifications. It accounts for approximately one-third of the world’s annual coffee crop, a fifth of sugar output, and about a third of soybean output:

Moving from South America to our friends in the North, and a rather different struggle faced: an oat glut. Nigh on perfect weather conditions for growing season last year in Canada has combined with an extremely harsh winter to lead to a perfect storm for oats, with a bumper crop struggling to be transported out of the country.

Farmers blame the railways, railways blame the weather. A brutal winter has cut transportation on railroads because it has caused the need for shorter trains at a slower pace, causing more traffic. However, farmers say that railway companies are favoring the shipment of petroleum products because they are more profitable. Regardless of who is correct (is probably a bit of both), 60,000 railcars of grain have not been filled as ordered, while 53 vessels are waiting for grain at west-coast ports.

To bring some harsh reality to this story, there could be a CHEERIO SHORTAGE in the US should oat imports from Canada continue to be held up. Even if this doesn’t happen, there is a decent likelihood that a quarter of Canada’s 2013 crop will still be in grain elevators by the time farmers start planting this year’s crop. As we move into spring, this could become a tale of glass bowl half-full.

Finally, I leave you with something completely different again. Something which is really rather fascinating:  the new commodity of the future could be…wireless broadband. Really.

The wireless broadband market is currently regulated, with large chunks of it typically bought by telecommunication giants such as AT&T, Verizon, Sprint, and T-Mobile. However, the US government is considering deregulating the wireless markets – just as has been done for electricity markets in many states. This would allow broadband carriers to buy and sell various amounts of the broadband spectrum, based on fluctuations in demand; essentially this would mean that broadband could be traded like any other commodity. Something completely different, indeed.

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