It’s time to get hard-nosed about soft commodities
Population-growth and climate trends point to the growing importance of agricultural commodity markets.
Although measures to promote biofuels, especially in the US, have attracted a lot of attention and interest in specific commodities such as corn and soya beans, the case for a broad-based and prolonged bull run in soft commodities looks compelling.
On the demand side, population growth and rising living standards in the developing world are creating huge increases; on the supply side, production growth is constrained.
The world’s population is increasing by 80 million people a year, equivalent to the population of Germany, and meat consumption is rising at twice the population growth rate – an important factor given that it takes seven grams of grain to make one gram of meat.
Most of the world’s most fertile land is already in use and much of it is in decline because of soil erosion and overuse. Moreover, about 35% of the world’s arable land has already been seriously damaged over the past 50 years and as much as 30% of it could be unusable by 2020.
Productive capacity is also threatened by water scarcity and climate change.
Agricultural stocks are in decline. Global stocks of coffee have been in decline since 1995, wheat since 1999, corn and rice since 2000 and cotton since 2001.