Commodity price rises set to continue, says new report

The bull run in soft commodity prices is expected to continue despite this week’s global stock market crash, according to a report released this week by agricultural consultant Bidwells.


While the current boom had been fuelled by rising demand from emerging countries, factors such as land scarcity and water shortages were likely to exacerbate the situation, the report said.


Richard Warburton, head of agribusiness at Bidwells, said supply constraints in the industry and a slowdown in improvements in agronomy were likely to cause “a long cycle of rising prices”.


Growing concerns about producing food sustainably while growing enough to meet rising world demands “may well prove to be the biggest challenge of the 21st century,” he added.


Despite the challenges, Bidwell’s Carl Atkin said the continuing bull run was good news for UK farmers, but it was important to be cautious.


“Cost pressures will be driven up, particularly land occupation costs,” he said.


“There’s also a danger that people may take their eye off the ball with regards to cost control. If they get massive margins they don’t necessarily look at how much things cost to produce.


“What is very apparent though, is all farms will need to get better at risk management, which is not something the industry has been very good at in the past.”


Mr Atkin said with soft commodities continuing to perform well, City investors may be tempted back to agricultural markets.


“If that happens, investors may want to farm the land themselves. In that case there will be opportunity for those who have a good understanding of agriculture to come and farm on a contract basis.”


While it was impossible to know whether the agricultural market was facing a structural or cyclical change, a lot of “fundamentals” had come together at one point, Mr Atkin added.


“With increases in food demand, we only need another blip in grain production like last year for a shortage to occur. With that in mind, there are lots of reasons to suggest the markets will stay bullish.”


Reasons for a bullish soft commodities market



  • – productivity is failing to keep pace with population growth

  • – people in emerging economy countries are improving their diets with more meat and dairy products

  • – demand on commodities for food and fuel is increasing

  • – lower levels of direct support exposes commodity markets to greater volatility.

  • – Rapid urbanisation is reducing the amount of water that can go towards agriculture




































Commodity bull run


 


Jan 2006


Jan 2008


% change


Feed wheat £/t


66


175


165


Rapeseed £/t


130


300


131


Eggs £/doz


1.08


1.46


35


Maize futures USc/bushell


390


500


28


Soyabean meal £/t


155


265


71