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|Funny,AIGA the soft commodities ETF has jumped 6% over the last few days -3% today and this is hardly moving -a buying opportunity?|
|From Agrimoney last week:
'Sparks could fly' in commodities in 2011 - BarCap
Commodities prices look set for a period of powerful growth as economic recovery gains pace, Barclays Capital has said, rating corn as the best bet among crops, supported by a "slew of supportive fundamentals".
The revival in commodities markets remains "modest" compared with rebounds from previous recessions, with prices, as measured by the S&PGSCI index, still 10% below levels at the start of the US recession three years ago.
"In most previous recoveries, commodity indices had by now exceeded their starting period levels," BarCap analyst Kevin Norrish said in a report.
Yet with interest rates remaining low, many countries backing economic growth by printing money, and demand from emerging markets expanding fast, "it would be surprising if commodities did not match their performance during previous strong recoveries".
"Sparks could fly," the briefing said.
Previous strong rebounds included those from recessions starting in 1969, 1990 and 2001 after which from this stage, some three years on from the start of the downturn, commodity prices had gone on to double within the next 18 months.
'Stresses and strains'
Indeed, commodities typically perform best late in the economic cycle, when "supply constraints begin to bite, excess capacity gets used up and inventories start to dwindle", Mr Norrish said.
"There are a number of signs that these kinds of stresses and strains are starting to build," with many commodities turning to backwardation, when near-term contracts are worth more than those further ahead.
Typically, especially among farm commodities, more distance lots are more expensive, to reflect storage costs and risk.
The bank singled out early 2011 as a period of "upside risks" to commodities prices.
"We expect an environment of sustained economic recovery, more positive financial market sentiment and the persistence of exceptionally easy monetary policy to provide a solid platform for further gains," Mr Norrish said.
Winners and losers
Among farm commodities, corn was a particularly good bet because of the co-incidence of tight stocks at a time of booming demand from ethanol plants, and when China has turned net importer.
However, wheat prices would be supported by weather concerns, and soybean futures backed by firm demand from China for imports.
"We are also positive on cotton because supplies are tight, stocks relative to use are their lowest in more than a decade and a half and export quotas limit India's cotton export."
The bank's least favourite food commodity was coffee, thanks to the prospect of rising production.
Related Agrimoney articles
High crop prices to stay into 2012, says Goldman
Crop prices to stay firm into 2012, says SocGen|