As the world debates on the shape of economic turnaround (U, V, W, or any letter), commodity prices have been following just one trend, a firm movement upward. A look at major global commodity prices, both in agricultural and non-agricultural areas, shows that prices of most have risen in the April-June quarter vis-?-vis the previous quarter. If it?s stray signs of revival, mostly in the US, that?s keeping metals hot, it?s supply disruptions across the globe, largely triggered by drought or floods, that?s pulling agricultural commodities up. Only last week, corn, the biggest US crop valued at around $48.6 billion, rose to a 14-month high on fears that unusually warm weather in the US would damage the standing crop.
Wheat prices soared to their multi-month highs a few weeks ago. In fact, they are still strong, as Russia, the world?s third largest exporter in 2009-10, banned exports, following a devastating drought that trimmed its domestic output. Between June and July, US wheat prices rose from $157.7 per tonne to $195.8 a tonne, a staggering jump of 24%. In early August, wheat futures traded at around $7 a bushel, threatening to breach a level last seen in 2008. Some reports even say Germany, one of the biggest wheat exporters, may have to import almost 1 million tonne of milling wheat next year as wet weather destroyed this year?s harvest. Overall, wheat now looks for a strong upward movement and there is every possibility that it might top the last highs seen during the commodities boom just preceding the economic downturn. The FAO estimates that for the first time in three years, global cereals demand will outstrip supplies by almost 10 million tonne.
If the story in wheat and corn is of rising prices, it?s not the same in paddy, where between June and July prices rose by just 0.6%. However, here too some believe that if supply of other group cereals continues to remain disrupted, it?s just a matter of time before rice prices too start moving upward. More so, when global trade in rice has been severely hampered by India?s reluctance to allow export of non-basmati varieties. Among edible oils, palm oil prices climbed to its highest level in 15 months in August, over fears that heavy rains in Indonesia and Malaysia will cut production. The two Asian giants account for more than 80% of the world palm oil supplies.
In the long run, there is enough scepticism on palm oil supplies as over-reliance on raising palm oil supplies because of its benefit as an alternative fuel has limited the expansion of new plantations. Soybean oil also moved up by 5.5% between June and July this year. This is not all. In cash crops, too, prices have moved up in the last 3-4 months, either over fears of supply disruptions or because of improving demand. The trend looks in favour of farm commodities as supply disruptions usually are not rectified in short time.
Coming to non-farm commodities, the story here is mainly led by gold, copper and nickel. Gold prices, which touched record highs a couple of months ago because of the Greek debt crisis, are again firming up.
Thanks to the positive numbers in the US and China, copper recently touched a 14-month high. It had moved 3.6% in the physical markets between June and July, so has nickel, which climbed by around 0.6% in the two months. Overall, the base and precious metal complex looks firmly in favour of a upward movement, provided positive news flow continues from major economies. This, though good for traders and investors, could fuel inflationary concerns leading to rising input cost for companies. Whatever be the consequence, commodity prices across the board are now looking strongly upward, the factors may differ for agricultural and non-agricultural commodities.
sanjeeb.mukherjee@ expressindia.com