This year’s commodities story: pork bellies and cattle

published 5 January 2006

If you had invested in commodities at the start of 2005, you'd be sitting on some handsome gains. The energy sector had a buoyant year, with oil and natural gas prices up 45% and 135% respectively. Base metals delivered handsome returns too: zinc surged 63% and copper gained 55%, while precious metals (MoneyWeek's favourite thing) shone: gold, silver and platinum were all up over 20%.

So can the boom continue in 2006, and if so where will the big money be made? Our Roundtable members (click here to read their views on 2006) all seem convinced that the bull market is here to stay fuelled by ongoing growth in emerging markets but, as Stephan Wrobel points out, that doesn't mean that the same parts of the market will do well.

2005 belonged to oil, but 2006 may well be the year of soft commodities. The likes of orange juice, coffee and sugar posted enviable price increases in 2005, but Kevin Kerr of Global Resources Trading says the party isn't over.

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Sugar in particular looks good. Thanks to the biofuels boom, demand is on the up and some traders see the price moving from its current 14c a pound to 25c in the near future.

Kerr also points to the meat market as looking interesting. As countries get richer, their populations tend to eat more protein, so that should keep demand rising at a steady rate. But if the threat of avian flu continues to spook consumers, it will soar as they turn away from birds. It may well be time for investors to familiarise themselves with the futures markets in lean hogs, pork bellies and feeder cattle.