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Alternative Market Briefing

Agricultural commodities might be a trend in 2010 (1) - many expect price hike due to supply/demand imbalance

Wednesday, January 06, 2010

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Benedicte Gravrand, Opalesque London:

Agricultural commodities have always been a riskier part of the commodities market. But due to its inherent volatility, it is a good place to hedge, using leverage and futures contracts for example. The industry is also a good place to invest if you believe that the food production levels will have to increase dramatically to meet the needs of the rising population – so the likes of fertilizers might be a good bet. And if you believe that there is a food crisis, as stocks are dwindling and population is increasing, then betting on rising crop prices can be a good thing too.

Some fund managers agree that the de-correlated agricultural market is good for diversification but not for long-only investing, however (see Oct-09 Opalesque Exclusive here). And most say that, currently, most of the market is in contango and that inventories are too low.

Agricultural commodities (“agri”) were not really swayed by the 2008 crisis, except when investors sold everything. What really affects them are the weather, plantations and harvests, speculators, inventories, liquidity, the risks of contango (when the price of a commodity for future delivery is higher than the spot price) and backwardation (when the contract approaches expiration, the futures contract will trade at a higher price compared to when it was further away from ......................

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