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12 Aug 2022 5:58
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  •   Home > News > Business > Features

    ‘Soft’ commodities taking over?

    The next likely investment bull run may well be in ‘soft’ commodities such as food, taking over from the ‘hard’ resources and minerals boom as the hot assets sector.

    Certainly, recent events suggest this trend is picking up.

    Fonterra has confirmed its forecast of $6.90 - $7.10 per milk solids kilogramme for the 2010-11 year, up from the $6.10 it paid out this year. In 2003 the payout was just $4.15.

    Cocoa prices in July hit a 32 year-high and are now around 25% higher than their previous high in June 2008.

    Sugar has just hit a five-year high and the International Sugar Organisation says global sugar demand will outstrip supplies by 8.5m tonnes in the current season.

    Even meat, for a long time an underperforming sector, is doing well.

    Lamb prices recently hit a 37-year high internationally and beef climbed to a two-year high.

    Live cattle futures last month hit US$1 a pound, near their 2008 record. And futures for pork bellies – used in bacon – have hit a record price of nearly US$1.50 a pound.

    In Australia, lamb prices have risen to more than A$5.50 a kilo, something they haven’t done since 1974.

    Meat production has stagnated in top exporting countries over the past decade, partly because Australia and Latin America have experienced extended droughts. Australia’s sheep flock has halved in the past decade.

    Ironically, New Zealand farmers have also been falling over themselves to get rid of their sheep and beef cows in the same period.

    While dairy herds are at record levels, the national sheep flock is around 32 million, less than half the peak of 70 million reached in 1982.

    At the same time, meat demand in emerging markets like China and Brazil keeps growing.

    Brazil’s demand for beef is growing, meaning its exports are declining. Pork demand is growing there as well as in Russia, Vietnam, Mexico and South Korea. Brazil, India and Russia are consuming far more poultry.

    In the Middle East, one of the world’s largest meat importers, demand for lamb and mutton is growing rapidly.

    These trends are set to continue. According to the International Food Policy Research Institute, by 2050, developing country meat consumption should rise by 65%. And it expects it to climb 16% in the developed world.

    Even wheat has hit a record high this month, although to be fair that is a lot do with unusual weather events in Russia. When the weather settles down and Russian grain crops go back to normal (2012 at the earliest), then the price should drop.

    There are a number of listed companies in this country that produce food. Examples are meat producer Affco, which is under offer from the privately-owned Talleys group, colostrum distributor New Image Group, wine company Oyster Bay Marlborough Vineyards, fish firm Sanford and kiwifruit grower Satara Co-operative Group.

    Many of these companies are relatively small and their earnings and share price are likely to be volatile, so take advice before investing.

    © 2022 Mary Holm, NZCity

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