As you are well aware by now, commodities have been having a major bull run for over five years now, and many investors are asking themselves if there are still good reasons to have a commodity strategy for their investment portfolio? And if so, how should they guide the development of their commodity strategy to benefit over the next five years?

Commodities, which cover a wide range of items - from agricultural products to mined minerals - began a long bear market around 1980, and during this time, even as the prices declined, many marginal producers were forced out of business. This led to major consolidations in the industries, and made remaining companies very lean and efficient in their operations. These are real benefits of a bear market as it cuts the fat and forces discipline on the producers, the supply chain and the retailers. In the case of commodities, lower cost tends to get passed on eventually to consumers as the cost of manufacturing products declines (since the input cost of commodities goes down). The stock market concomitantly entered into a roaring bull market.

The last five years have however, seen a renaissance in the prices of commodities even as they made an important bottom around 2001 and began a multi-year price rise. Many commodities made all time highs, leading investors to wonder about their future. Clearly, after such a meteoric rise, commodities are likely to enter into a dull, flat phase or even moderate decline. Such pauses are wonderful for the market to digest the gains, allow producers and consumers to adjust to the new prices and make suitable product portfolio and pricing changes for the retail customer.

So it is worth briefly examining if the reasons behind the commodity bull market have finally eroded.

Higher commodity prices bring more producers into the picture that alleviates supply concerns. This has begun happening, but as is evident in sectors such as oil, gold, uranium and other metals - it takes 5-7 years for companies to prospect and acquire land, drill, extract and finally make available the needed metals and minerals to the market. And a lot of this work has begun only in the last two years as the price of commodities finally reached a level that made all this work economical. This means we are still 3-4 years away from seeing serious new supplies of commodities. This however does mean that it is better to concentrate on those sectors in the commodity market where new production is hard to bring online, like mining and oil drilling.

Demand from China, India, Brazil, Russia and other emerging economies continue to grow rapidly. These countries cover almost half of humanity, and as they experience a higher standard of living, the demand for commodities will remain on an upward trend. The individual economies of these countries may face a hiccup or two in the coming years, but the overall trend for the next decade or so up, up and away. This pressure accentuates the natural cyclical uptrend being observed, leading to a rapid rise in prices and provides a much higher floor on them.

Expect bear market cycles within the larger uptrend, as already mentioned - this is a natural ebb and flow of the business cycle - and thus don't get thrown off by consolidations, and minor setbacks. And finally, expect leadership to change even within industries where commodity prices are in strong uptrends. This means, your portfolio should reflect new leaders all the time - so avoid falling in love with a company or its stock, and be ready to favor those that the market is indicating as the new leaders.

The commodity story is not over yet, though the easy money has been made. Concentrating on specific sectors and leaders within the sector will help you reap the rewards of the next phase of this secular, commodity bull market.