Soft commodity demand to soar, says Agri specialist – Citywire.co.uk
DWS Agribusiness manager Ralf Oberbannscheidt of Global Thematic Partners expects volatility within the soft commodities market to continue as demand soars following poor global harvests.
The New-York based manager told Citywire he expects the prices of the main food staples such as corn, wheat, sugar and soy to rise in the coming months but recommends investors to back the supply chain rather than aim for direct investments.
‘I compare it to the US gold rush in the nineteenth century,’ said Oberbannscheidt, who runs the €1.7 billion DWS Invest Global Agribusiness fund alongside Oliver Kratz. ‘It’s better to invest in the shovels and picks rather than in the goldmine itself – it’s a safer proposition.’
He expects volatility to continue through 2011 and expects agri processor groups such as Archer Daniels Midland (ADM) and Bunge, two of the leading firms in the sector, to benefit from the price rises. The market inefficiencies are where Oberbannscheidt makes his returns, anticipating the gaps in the market where others might not.
‘A lot of people underestimated what was going on in the soft commodities sector. The US crops were a lot worse than expected. In Europe, the wheat crop harvest suffered as well as it was too wet and just recently there was a massive drought in Brazil which will affect the soya harvest next season.’
Since the commodity markets bottomed out at the end of 2008, the DWS Invest Global Agribusiness has posted returns of 90.7%, while the MSCI World/Consumer Staples benchmark rose 34.7% during the same period in euro terms.
Global food inventories rarely hold more than three months worth of food, which combined with the ambient protectionism many countries are promoting can have a strong effect on commodity prices, according to the agri manager. He highlighted the case of India which recently lost 25% of its wheat crops after installing an export ban on wheat. Crops were left rotting in fields as they did not have enough warehouse space to store the wheat.
‘The agri business is not a very difficult market. The only trick is that you have to do your homework, monitor the climate and also the eating habits. There is not enough coordination within the industry but the money is there and people need to have a longer term view.’
The increasing wages and rising middle class in the emerging markets means these countries are commanding more of the world’s food produce, according to Oberbannscheidt. Whereas before they were self-sufficient, some have had to resort to imports to satisfy demand.
‘It’s the first year that China is importing corn. It used to be the world’s largest corn exporter and although the import represents only 2-3% of its total production it still signals a trend.’
The US’ dominance in the agri sector is dwindling and he expects emerging countries like China and Brazil to become ever more prominent in the near future.