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Alternative Market Briefing

De-correlated agricultural market is good for diversification but not for long-only investing - BlueGold, Dreyfus

Thursday, October 29, 2009

By Benedicte Gravrand, Opalesque London:

It is important to remember that the agriculture market (ags) is much smaller than the energy and other commodities markets, said Olivier Pairault, portfolio manager at the Swiss offices of BlueGold Capital management at yesterday's Jetfin conference on commodities and energy in Geneva. And the other important thing to remember is that it is best to look at the micro trends when dealing with this market - rather than the macro ones.

So this sector has really followed its own path almost completely unaffected by the credit crunch, in its own macrocosm where fund managers worry more about the weather and the producers than what goes on in the financial markets.

To exemplify the de-correlation of ags to other commodities, Pairault quoted sugar, which was subject to two peaks in the 70s and 80s (coinciding with less "stock to use"). This year and last year, stocks to use went down again. Part of the reason is that India's production decreased as the government forced prices down, a deal unfavourable to farmers. Also, stocks of sugar in Asia used to be high, leading to low prices, but not any more. "Sugar may move again into surplus by the end of 2010," he said, "but prices may remain high however."

Pairault commented that speculators do help this market by giving good price for futures (for producers) and helping the market get more supply......................

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