Agriculture Commodities Sweet Future

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Agriculture Commodities Sweet Future

Postby Pixel8r » Sun Dec 06, 2009 9:37 pm

Agriculture Commodities Sweet Future

Dec 04, 2009 - 04:30 PM
By: Jennifer_Barry - http://www.globalassetstrategist.com/

In December 2008, I discussed the rebound in world food stocks. Excellent weather in the second half of the 2008 growing season led to near-record yields. The fall saw a bountiful harvest, especially in grains. At the same time, the global economic slump had crushed crude oil futures, dampening the associated biofuel demand. Most agricultural commodities, including the grains, fell sharply in price.

Nevertheless, I thought the sentiment was too bearish, and there was reason to predict a rebound in the agricultural sector in 2009. The ending stocks in corn were expected to be the tightest in three decades. Some experts deduced that old crop soybeans would be nearly gone by the time the fall harvest occurred, due to stockpiling by China and drought in the Southern Hemisphere. Wheat also was affected by poor weather and historically low supply.

My essay seemed prescient, as the grains formed a bottom just a few days after publication. The soybeans, corn, and wheat rallied vigorously into the new year.

However, these gains were not to last. The grains were dragged down by the sell-off of assets in generalized market anxiety in March 2009. After a spring recovery, growing conditions for the grains improved. A shockingly higher USDA forecast caused corn, wheat and soybeans to drop.

Unfortunately for global households, I doubt these low prices will last. India seems to be overly optimistic about its wheat stocks, and will probably need to import grain next year. China has a near-insatiable demand for US soybeans, buying in eleven weeks nearly as much as they purchased all 2008/9 crop year. Cocoa and sugar have already reached multi-decade highs this year, spurred by bad weather and disappointing yields. If these trends continue, a big harvest in the Southern Hemisphere will be required to keep prices from surging.

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