between the surge in sugar prices in 2006 and the current boom in
grain and oilseed prices was the level of global stocks, which was a key
driver of prices at the time when prices were skyrocketing. Although
supply and demand were tightly balanced, in the case of sugar, global
stock levels were not especially low, and to some extent the market
simply got carried away with the idea that it was changing drama-
tically as a result of the change in the EU sugar policy and the booming
ethanol demand in Brazil. In contrast, global grain and oilseed stocks
have steadily decreased over the last decade, and are now historically
at particularly low levels. Thus, unlike the sugar price surge in 2006,
today's high prices for grains and oilseeds have considerable support
from current market fundamentais.
Act fast
The case study also shows that the commodity markets can react
quickly to developments in the market, from both production and
stock positions. Kennes says "with commodities it is always a question
of finding the balance between supply and demand. We expect that
the coming year will see demand grow. Irrespective of the bio fuels
and ethanol story, demand for meat from countries like China and
India will continue to grow strongly. Urbanisation and rural depopu-
lation mean fewer farmers must feed more consumers. This will in
turn stimulate industrialisation, professionalisation and demand for
foodstocks. Our estimates suggest the market can handle this growing
demand".
Conflicting dynamics
Braks adds that the prices for grains and oilseeds are indeed high,
but still in proportion. "If you correct prices for inflation, you see that
the long-term trend in real grain and oilseed prices is lower. Over the
years, raw materials have never actually become very expensive, de-
spite the fact that world population has increased by almost one bil-
lion since the nineties, and we are all much richer. There has always
been some extent of price insecurity; this confirms our research,
which shows something of conflicting dynamics, but particularly
shows that production can be rapidly expanded".
Dirk Jan Kennes concludes that "wheat prices in the EU remained at
the level of 110 euro per ton in the 2000-2005 period. Now they have
shot up as the supply-demand balance is out of sync. However, we
expect that suppliers will quickly respond and within 2-3 years, prices
will return to long-term trend levels of approximately 150 euro per
ton".
Soft commodity - a label for a commodity that is typically grown in the ground
rather than mined, thus usually includes cocoa, sugar, coffee, and sometimes cot-
ton, fruit juices, oilseeds and grains. Metals, chemicals, livestock and suchlike are
therefore not included.
issue is Tl IE WORD 1 1
