Well, according to 'commodity guru' Jim Rogers, there is basically only one safe haven left: the agricultural market, also called the soft commodities. To this category belong, for instance, wheat, corn, soybeans, cocoa and sugar. Buying futures on these individual products enables people to partly hedge their 'shopping' against inflation.
China and India drive prices
The increasing prosperity in China and India for instance is one of the driving forces of agricultural prices. Jim Rogers stated boldly that 'even if the United States of America was to go bankrupt, another three billion people from China and India would still drive the demand for food'.
This is also one of the reasons why soft commodities are less vulnerable to the current problems than other investments. Not only have hedge funds and, to a certain extent, some investment banks, like the German IKB and the French BNP Paribas, been forced to bail out, but also speculative positions in the oil and metal market. Crisis or not, people will always have to eat. The Rogers named RICI-index has five folded!
Biofuels factor
Another important factor is putting pressure on agricultural products: the increasing demand for biofuels. Sugar (cane) can profit from this development, since sugar is the primary commodity for ethanol. Nowadays, the relative value of sugar in comparison to oil, because of the year to date drop of nearly 20 per cent, is very low.
For example, the price ratio oil/sugar has risen to 2.5 versus the 'mean' ratio of 1.0 during the past ten years. The chart of (world) sugar shows that the price is trying to form a bottom between $9 and $9.5. If sugar succeeds and is also able to break above $10.5 then the only way will be up.
Be aware that futures on soft commodities can be very volatile. It is also advisable to check some websites first for contract specifications and trading times.
Jerry de Leeuw, Managing Director, Mercurious
Tuesday, August 28 - 2007 at 14:21 UAE local time (GMT+4)
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