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Peter Corish, the former president of the National Farmers Federation, now CEO of listed agricultural investment vehicle PrimeAg, believes that these structural changes mean high prices are here to stay. “The same factors that have driven the resources boom – strong demand from China and India – are behind the soft commodities boom. This boom is just beginning and we think it will have continued upside for the next decade,” Corish says.
Consider wheat. In some countries, wheat has become such a precious commodity that price controls have been implemented or considered. In Malaysia, it’s now a crime to export flour and other products without a licence, and in the Black Sea region as well as South America, price controls aim to keep prices low or make the export of soft commodities illegal.
Wheat futures nearly doubled by the end of 2007, and in seven of the last eight years, world wheat consumption has outpaced production, says Luke Chandler, senior commodities analyst with Rabobank. “Prices are at extreme levels when considered in light of their historical context. That’s not to say they’re anomalies. The fundamentals are strong, and a huge wave of investor money is flowing into commodities as a result,” Chandler says.
Global dairy prices doubled to all-time highs during 2007, and corn and soybean prices reached 11 and 34-year highs respectively. The Reserve Bank of Australia’s monthly index of commodity export prices (this measure includes beef, wheat, wool, cotton, sugar, barley, canola and rice) increased by more than 10 per cent in Australian dollar terms and by 27 per cent in US dollar terms during 2007.
The Commonwealth Bank agribusiness index of 15 listed rural companies is up 39 per cent for the 12 months to March (the S&P/ASX accumulation index fell by 7 per cent over the same period), and Deutsche Bank and Macquarie Bank have set up specialist investment funds to accommodate demand.
Corish is so bullish about the outlook for soft commodities that he has just set up the first ever listed soft commodities company in the world to take advantage of long-term demand for wheat, barley, chickpeas, sorghum and cotton, as well as livestock. His company, PrimeAg, which listed on the ASX on December 24, raised $300 million to buy land and water entitlements. PrimeAg has powerful backers. James Packer’s Ellerston Capital has emerged as the owner of about 10 per cent of the stock and the board of directors includes former Woolworths executive Roger Corbett.
Corish is also confident that the sector will continue to grow. “We think prices are running on a new paradigm level. We firmly believe that prices will be much higher than what we’ve seen in the past and that these prices will be sustainable.” Others are less confident that these prices are here to stay. “Will the new benchmark price of wheat be US$900 a bushel? It’s impossible to know because we’ve never been in this territory before,” Ginns says.
But the larger point is that as long as Australian agribusiness remains reluctant to grow beyond primary production they will remain subject to “the vagaries of the global commodity markets,” says Gastin. “We have the single desk for wheat and co-operative structures for dairy as a means of protecting farmers, but the best way to be protected is to have a value-added product that’s protected by a global brand.”
Kristen Le Mesurier is a Freelance Journalist.
