The following is a guest article written by Ravi Patna. Mr. Patna studied systems engineering and economics at the Wharton School of Business at the University of Pennsylvania under the Jerome H. Fisher Program in Management and Technology.
GSCI - Commodity Futures Index (click to enlarge)Food demand is going to explode anyway you think about this. Income elasticity of food in the developing world, especially among the very poor is definitely greater than 1. All of the BRICs and N11's have forecast GDP growth rates of more than 8% per year (at least for the next 5 - 10 years). Assuming these growth rates are still valid, and I feel like they are, despite our current worldwide economic slump, this implies annual increases in demand for all agricultural and most other commodities, notably oil, in excess of 10-15% (GDP = national income).
(This also assumes that those whose income elasticity of food is greater than 1 reap the newly created wealth. This has occurred in China, not so much in India. This assumption is worth investigating.)
So then, is supply going to be able to ramp up at the rate of 10-15% per year? Considering it takes about a decade and a half to put any sort of oil or mineral plant online, and given how susceptible agriculture is to weather, etc. supply very well may not be able to meet this increased demand--definitely not in the next 10 years, at least.
The discussion above justifies going long almost any sort of commodity. And it seems that any company that is able to step in and eventually meet this new demand, will make some case.
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