Soft commodities to surge, says EIU

Globally, this can be yet another year to see a surge in agricultural commodity prices.

With demand outpacing supply, 2007 will be a bullish year for soft-commodities and food, feedstuffs and beverages (FFB) and the price index is expected to rise further by 5 per cent, says Economist Intelligence Unit (EIU).

"Buoyed by the biofuel industry, demand is outpacing supply in many markets, particularly which have suffered from adverse growing conditions," said Kona Haque, senior commodities editor, EIU.

This will result in commodity stocks, which is going further down ...and prices will strengthen. However, in 2008 the index may undergo 2 per cent decline, mainly led by beverage commodities and sugar, the report adds.

Sugar remains an exception as world sugar output is expected to overrun the demand growth.

According to the EIU's report, grains and oilseeds will witness the strongest rise in prices in 2007, at least 7 per cent year-on-year basis. Weather anomalies associated with El Nino and competition between crops for land space are affecting supply prospects.

The EIU's report further adds maize, soyabeans and palm oil will be in short supply following unfavourable conditions in the main producer regions and rising ethanol demand. Soyabean meal will benefit from higher feedgrain prices. Shortage of grains and oilseeds will continue to persist in 2008 as well. With stocks falling further, prices will remain firm.

Large wheat crop estimates in 2007 may stabilise the markets but production, report says, will need to be increased further in the next year. Coffee prices are unlikely to weaken before the frost period (June-August) in Brazil.

Demand for oils for food and energy use, has boosted oils, oilseeds and meal prices (in spite of higher production). Soyabean, sunflower seed and palm oil in particular. Stocks will continue to fall in 2007-08, as grain competes with oilseeds for available land. Vegetable oil prices will remain firm for the foreseeable future.

Sugar is the only price index forecast to fall. Substantial surplus will lead to 20 per cent price decline. As speculative investors continue to unwind their positions, a further decline of around 4 per cent is projected for 2008.

However, increased demand for sugar as a biofuel feedstock will support producer prices in the longer term.