Food prices will fall from current unsustainable levels, says Bill Barbour, director, investments specialist, Asia Pacific & MENA, Deutsche Asset Management (Australia), who also manages the $4 billion agri-commodity fund. He speaks to Muthukumar K and Chirag Madia, in a freewheeling interview.
How has DWS Global Agribusiness offshore fund performed as compared to that of MSCI World Index?
Till January, the fund had outperformed MSCI World index. However, the month of February wasn?t a great month for emerging markets with what happened in Middle East. So now, since inception (our returns are slightly lesser than that of MSCI World; While MSCI World has given a return of over 22%, we have managed to give 21.8%. Indian markets during the same period is down 1.2%.
Which are the sectors you are currently bullish on ?
We don?t have a cap on country or sector exposure; and at current juncture have fertiliser and agrochemical companies like Syngenta, Monsanto among top ten holdings as well as handful of agricultural product companies. While earlier we were bullish on upstream commodity companies ? like that of fertilisers, seeds, irrigation, and agricultural and machinery companies, now we are shifting focus towards downstream companies, given that we expect soft commodity prices to come lower from these levels. We feel the surging soft commodity prices are unsustainable even though long-term food price trends are pointing upwards. And lower prices would help downstream companies (say retail companies) to improve margins as compared to the past when they were not able to pass on the entire rising cost to consumers.
Among soft commodities, which are the commodities you are bullish on?
I think sugar over the long-term is good, specially in the context of bio-fuels its actually interesting. Sugar prices are up 98% in the last seven months (as of 27th January, 2011) and the demand of sugar is likely to remain in the longer term given that markets like India and China have a sweet-tooth. Corn is other commodity which has not gone down over the last few weeks and which looks attractive. It has gone up 66% in the last seven months.
Food inflation in the country is on its way up with no signs of fully cooling off. What?s your view?
I think inflation in India will come down which has already started to happen; food prices will also come down. But it is subject to the inventory situation also.
So, what can happen if India gets a bad monsoon is tough to predict. While the MET department has predicted a normal rainfall this year , to some extent it was expected with 2009 and 2010 being bad years for agriculture. And if there is indeed a normal monsoon then it will good for India as inflation will come down having positive impacts on the economy as well as equity markets.