The Hindu Business Line : Agri-commodities attracting investors

In addition to precious and base metals, which are witnessing a bull run, agricultural commodities are also seen attracting the attention of tactical investors.

Globally, there is lot more caution in investing in commodities, whose prices are seen peaking, as the perceived level of downside risk is high.

On the other hand, agricultural goods - whose prices are much below their historical peaks - are seen turning speculators' favourites.

Sugar & corn

Both sugar and corn (maize) prices are expected to rule firm for some time to come in the international market because of continued high demand for ethanol for use as bio-fuel; ethanol can be produced from cane or corn.Higher diversion of cane and corn for ethanol has been accelerated by the soaring energy prices.

The corn market, especially in the US, is expected to stay firm in the medium term on account of strong ethanol demand for doping with gasoline.

The US is the world's largest producer and exporter of corn. In the current year (2005-06), corn output is estimated at 282 million tonnes and exports at a seven-year high of 50 million tonnes.

OUTPUT DECLINE

However, in 2006-07, there could be a potential decline in output as revealed in the recent prospective plantings report, which pointed to a possible five per cent decline in acreage.

Market fundamentals of sugar, the other key agricultural commodity with exposure to energy via ethanol, continue to look positive.

Although there could be some pressure on prices following harvest of cane crop in Brazil - the world's largest producer - such downward pressure would be temporary.

For the April-June quarter, prices may average 16 cents a pound, down from the recent highs of 18 cents.

However, strong demand for sugar and ethanol, declining sugar stocks, and more importantly, positive investor support, are expected to combine to prop up the commodity and maintain the price strength.

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