Global commodity markets went through turbulent times in the last three or four years, with volatility becoming the defining feature of the commodities sector, covering energy products, metals and agriculture. Multiple factors — some positive, some negative — drove the markets, often pulling in opposite directions.

It was not only robust demand growth, uncertainties in supplies, currency dynamics, sovereign debt crisis, geopolitical instabilities as also trade and tariff policy changes, but also over-financialisation of markets that induced volatility.

Although agricultural commodity markets remained reasonably insulated from the overall gyrations of various markets, a series of weather events, particularly in 2010, impacted farm goods prices.

INFLATION AND RATE HIKE

Starting with excessively wet conditions in Canada followed by drought in Russia, floods in Pakistan and extended monsoon rains in India, weather played havoc with crops. Later, floods in Australia and Brazil followed by drought in certain regions of China impacted sentiment. Traditional exporters were left with lower export surpluses, while consuming countries' demand surged.

As inflationary pressures started to build, especially in emerging markets such as China and India, monetary policy was gradually tightened. Even as bank credit was being squeezed by the developing economies (primarily to prevent asset bubbles or overheating in the economy ) the developed countries under the lead of the US continued to maintain an easy money policy – easy access to bank finance and near-zero interest rate.

With rising inflation pressures, the European Central Bank recently changed its stance and raised bank rates by 25 basis points. The moot question is whether, or when, the US will follow suit. On current reckoning global growth prospects appear headed in the positive direction, although many industrial economies may witness halting or hesitant growth with continued high levels of unemployment.

PRICE PRESSURES

For the global agribusinesses and especially those in the pulses trade, major food market drivers are all in place.

Sustained economic growth and rising population, particularly in the developing world plus rising incomes in the currently low per capita usage countries have combined to drive demand for all food products, including pulses. In addition, urbanisation and changing food habits of the rapidly expanding middle-class is also helping additional demand kick in.

Other food market drivers are supportive, too. Farm policies of OECD countries including farm support or subsidy policies, rising crude prices, biofuel mandates, land constraints, looming water shortage as well as threat of global warming are currently driving farm prices higher. The role of speculative capital in pushing prices disproportionately higher (unrelated to market fundamentals) is another factor.

The world opened 2011 with lower stocks of many essential agricultural commodities. Add uncertainties of weather — El Nino and La Nina — to the already tight stock position and you have a sure recipe for price spikes.

The emerging trends for the global agribusinesses in general and pulses in particular are clear. Developing countries will drive growth in production, consumption and trade. Importantly, agricultural cost structure will move higher.

This will be especially influenced by high and rising crude prices which raise not only input costs but also overall food production and distribution costs.

High crude prices will reinforce feedstock demand for biofuels. This, in turn, is sure to affect crop supplies, prices and trade flows of many agricultural goods. Where does all this leave pulses (peas, lentils and beans)?

Because a ‘rising tide lifts all boats', the effect on pulses would be unmistakable. Even if the global pulses market finds itself in surplus – an unlikely prospect on current reckoning – price spikes of the agricultural sector will rub-off on pulses.

It is clear that Asia will be the mover and shaker of the global pulses market. Asia's food needs are far from satisfied. There is a ravenous appetite for food.

With rising incomes, more food will be demanded. It is not just China and India, but who will feed Indonesia, Pakistan and Bangladesh, hugely populous Asian countries, is the question today.

For meeting the rapidly rising food needs of Asians, humungous investments are necessary in agricultural production, productivity, quality, processing and distribution. Where this money will come from is anybody's guess.

UNCERTAINTIES AHEAD

Weather could remain a major uncertainty for agriculture markets in 2011. The second uncertainty is dollar dynamics. Will the dollar continue to weaken or rally? When will the US easy money policy end and whether there would be an exchange rate realignment?

It is hard to tell at the moment, what direction the ongoing geopolitical disturbances will take in the coming months. They may escalate or subside.

Crude prices will depend on how geopolitics pans out and how countries respond to inflationary pressures. A lesser known fact is that in the US, market regulators (SEC and CFTC) are working on the Dodd-Frank Act to tighten controls on the securities market and commodity derivatives market. Stricter regulation will force some speculative funds out of the markets, which may help soften prices.

Lastly, India is the wild card as far as global pulses market is concerned. In 2010-11, as the world's largest producer, importer and consumer, India harvested an unprecedented 17.3 million tonnes of pulses crop (an increase of 2.6 million tonnes from the previous year's 14.7 million tonnes), helped by a healthy expansion in planted area and satisfactory rainfall.

The question is whether India will retain the same expanded acreage of over 26 million hectares in the coming year — kharif season followed by rabi. Pulses-exporting countries such as Canada, US and Australia are keenly watching developments in India, whose annual imports have ranged between 2.7 million and 3.6 million tonnes, accounting for a third of the global pulses trade.

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