Tags: Investors | Higher | Farm | Grain | Prices

Strong Demand Expected to Send Grain Prices Soaring

Wednesday, 17 Nov 2010 09:23 AM

Rich investors are gearing up for another leg in the commodities bull run and looking at purchases of grain as a chance to benefit from demand for food, animal feed and biofuel, bankers and analysts said on Wednesday.

Edward Ennis, head of commodities at Rothschild Bank in Zurich whose clients have $1 million to $200 million each in assets to invest, said commodities are a mainstream asset class for most top investors and he saw no signs their interest was cooling.

"We are on the verge of another commodity bull run," Ennis told a Global Grain conference in Geneva, a leading European hub for commodities trading.

Drought in Russia and a lower-than-expected corn harvest in the United States earlier this year pushed grain prices to their highest levels in more than two years.

From the investor perspective, Ennis said increasing risk aversion, inflation expectations, and worries about quantitative easing in the United States and discord between nations on currencies had all made commodities more interesting.

"The overall story over the long term is strength. We expect that commodities over the long term will be a very good investment," he said. "It is a bullish story."

Dan Basse, president of AgResource, an analysis firm based in Chicago, estimated that investors had already put $300 billion in global commodity markets, which are primed to take off again due to fast growth in China.

China's purchases remained strong throughout the global financial crisis and are likely to keep increasing as incomes there rise, outpacing other regions, he said.

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International grain prices fell on Wednesday amid speculation China would raise interest rates to fight inflation and concerns that Ireland's debt problems would weigh on the euro zone.

Still-high prices for cotton, staple foods, pork, poultry and beef may be a domestic political concern in China, Basse said, suggesting the country may be reaching "a tipping point in terms of food inflation" as its corn reserve stocks are being depleted.

"When the Chinese cannot control food inflation by jaw-boning, by influencing the market with their talk, they have no option left but to import," he said, describing a likely market jump and gains to exporters from the United States, Argentina and other countries.

Wealthy clients are looking to buy commodity futures, physical commodities, exchange-traded funds and equities with commodity exposure, Ennis told the Geneva audience of traders, bankers and agricultural experts.

"The world is going to face huge macroeconomic uncertainty, probably for years to come," he said. "Commodities will rally in this environment when you have heightened risk. A commodity rally in our view is ready to take off."

Some investors, however, are troubled about the prospect of contributing to another food price spike as seen in 2007/08 or about the sustainability of using food stocks as biofuels, raising questions about the ethics of agriculture investing.

"There is no clear answer on the ethical debate. But what I would say is, 'Stay very, very mindful of these questions, because they are quite sensitive'," Ennis told the conference.

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Rich investors are gearing up for another leg in the commodities bull run and looking at purchases of grain as a chance to benefit from demand for food, animal feed and biofuel, bankers and analysts said on Wednesday. Edward Ennis, head of commodities at Rothschild Bank in...
Investors,Higher,Farm,Grain,Prices
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2010-23-17
Wednesday, 17 Nov 2010 09:23 AM
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