Commodity futures could surge on tight supply outlook  Over the past 12 months, commodity prices have surged as burgeoning global demand has reduced stockpiles to historically low levels. Futures have recently slid, but according to a published report, they will soon climb again, which could fuel global unrest and potentially food shortages.

Bloomberg reports that the Standard & Poor's GSCI index, which monitors fluctuations in price for 19 commodities, is headed for its second straight monthly drop. Nonetheless, such reductions could soon reverse if history is any guide - and it usually is. The last time the GSCI index fell for two consecutive months, it then increased more than 36 percent over the following six months.

A number of economic factors have coalesced to send futures lower in recent months. The ongoing sovereign debt crisis in Europe, along with the slowdown in the global economy and reduced demand from certain countries like China has helped to depress prices. Industry analysts, however, contend that underlying supply and demand fundamentals indicate that future price hikes could be inevitable.

"The long-term perspective is that many commodities have supply constraints," BB&T Wealth Management asset manager Walter Hellwig told the news source. "That's an environment where you want commodities in your portfolio."

The S&P GSCI declined by 12 percent during the most recent quarter, but the index is still up a scant 1.3 percent since the beginning of the year. Many industry watchers affirm that commodities will likely increase during the second half of this year as economic growth is forecast to speed up, and with it demand is similarly projected to climb.

According to a Bloomberg survey of more than 100 analysts and traders, the best performing agricultural items will likely be corn and wheat, which have skyrocketed in value over the past few years. As demand increases in emerging economies like Russia, China, Brazil and India, producers will struggle to keep harvests up, analysts assert. As a result, the surveyed traders said that wheat and corn futures could surge 30 percent by the end of the year.

Food staples are not the only commodities that are forecast to climb higher, according to MarketWatch. Many industry analysts are bullish on certain precious metals like palladium and silver as well. Palladium is used in the assembly of catalytic converters and with the worldwide automobile market heating up - even amid supply chain disruptions emanating from Japan - demand for the metal will likely rise, according to Reuters.

Barclays Capital analysts stated in a report that the supply of palladium will fall about 112,000 ounces short of demand this year on high demand. What's more, the bank also forecast a 728,000-ton copper shortage for the year, which is equal to about 3.6 percent of total consumption. That figure also serves as more than 18 times the total of the prior year's deficit.

Moreover, as Chinese officials battle soaring inflation rates as they endeavor to slow growth and prevent civil unrest, the country is still exceeding prior projections for demand for a number of commodities from copper to wheat, which could put further pressure on commodity prices going into the second half of this year.

Many government officials and analysts are also worried about the inclement weather events that have hurt crop yields throughout the globe. Russia instituted a grain export ban last year to shore up its domestic supplies following damage to crops, and weather could potentially hurt crops in the U.S. and European crops this year.

"Commodity prices are going to continue to go higher. Worldwide, the economy continues to grow and monetary policy is going to stay relatively consistent with no changes," Permanent Portfolio fund manager Michael Cuggino said. "I still like the growth story." 
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