MercoPress. South Atlantic News Agency

Three more bull market years for farm commodities

Agricultural commodity prices will advance for at least three more years, bolstered by demand that's expanding faster than supply, according to a report by Jeffrey Currie from Goldman Sachs Group Inc.'s.

"We're already in the longest sustained agricultural rally since the early 1970s" said Currie, head of commodities research at Goldman Sachs. "You have a robust demand story that is likely to remain strong even under economic duress". Wheat and soybeans were two of the three best-performers on the UBS Bloomberg Constant Maturity Commodity Index of 26 commodities last year, spurred by growing demand for food, feed and bio-fuels. Drought curbed harvests in Australia and Canada and excessive rain diminished yields in the U.S., France and Germany. Wheat traded in Chicago jumped 77% last year and reached a record in December. Soybeans rose to their highest since 1973 last week and are forecast by Goldman Sachs to gain 29% this year. The bank forecasts soybeans will be this year's best investment in commodities. World soybean inventories in the 2007-08 marketing season will drop 23% to 47.3 million metric tons, from a record 61.1 million a year earlier, according to estimates from the U.S. Department of Agriculture. Soybeans for March delivery advanced rose 7.75 cents, or 0.6 percent, to $12.575 a bushel as of 2:08 p.m. in London. Prices gained 78 percent last year after U.S. farmers planted the fewest acres in 12 years to sow more corn. Goldman Sachs predicts soybeans will reach $14.50 a bushel this year. Consumption of grains and oilseeds shouldn't be curbed should global economic growth slow, Currie said. "Demand for agricultural commodities is not very cyclical" he said. "It's very much tied to population growth, which drives food demand, wealth, which drives meat and feed consumption, and policy, which drives fuel consumption". Expanding wealth in regions such as Asia and South America is straining supplies of grains such as corn while record crude oil is spurring demand for alternative fuels made from crops. Demand for bio-fuels made from grains, oilseeds and sugar is growing as nations seek to reduce their dependence on fossil fuels.