Agricultural commodities take centre-stage as prices rise

Agricultural commodities are taking centre-stage in global markets with its rising prices and stellar investment returns. Market experts such as Standard and Poors’ (S&P) said that exposure to commodities can now provide additional benefit to an investor’s portfolio and analysts said factors such as affluence and population growth are likely to drive demand for commodity investing even higher going forward.

In the last 12 months, prices for corn, coffee, soy and sugar have jumped ahead of gold rallies, which rose only 28 percent. For example, prices of corn have risen by 117 per cent, coffee up 88 per cent, wheat up by 70 per cent, sugar up 65 per cent and soybeans up 40 per cent. So what has been driving prices up here? Michael McGlone, Senior Director of Commodities with Standard & Poor’s, said: “The fact is that we have historically low base interest rates, commodities are fixed assets…the number one factor, the opportunity cost is base interest rates.

Rising demand for agricultural products have raised interest for such commodities as an investment asset as well. In the last 12 months, the S&P GSCI, which benchmarks investment performance in the commodity markets, rose 22 per cent, outperforming the S&P 500 which delivered a return of 13 per cent. Adding fuel to the commodities interest, is exploding population growth.

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