Financial Market

Wheat may not have the same prestige as gold, but over the past twelve months investors have found much to please the eye and pocket in fields of the crop.

Known as ‘softs’ agricultural goods are the latest product to join the commodity boom that has already pushed up prices in oil, copper and nickel due to the demand from emerging markets such as China and India. As mentioned previously on Financial Market gold has also benefited thanks to its perception as a safe haven from troubled economies.

With oil breaching $100 a barrel and gold recording record highs in early January, Financial Market takes a look at the outlook for commodities in 2008.

Oil:
Oil prices have soared in the last twelve months and as such consumers have seen increased prices at the pumps, and with geopolitical factors such as civil unrest continuing in Iraq and Nigeria, and political stand off with Iran, prices should remain around this figure for the near future.

A continuing weak dollar will also support oil prices as importers buy dollar dominated oil supplies.The reluctance of OPEC to increase output, and the weakness in non-OPEC supplies, coupled with increasing demand from energy hungry India and China will help sustain high oil prices and perhaps even push them up further. Either way 2008 looks set to be the seventh consecutive year of oil price rises.

Gold:
The impressive performance of gold over the last year as documented in the article ‘Gold breaks a 28 year high as investors look to dollar priced commodities’ has meant that investors now need look no further for a reason to invest in some gold jewellery.

Rising more than 30% in 2007, recording new price highs in the process, gold has benefited from increased demand off the back of the sub-prime market crisis. Investors have increasingly looked toward the yellow metal as a safe haven investment, and a continued weakened dollar and mounting inflation fears will continue to push demand in 2008.

Base Metals:
Base metals such as copper and tin have in essence been the building blocks of the economic growth, particularly in India and China. But for all the benefit gained from emerging economic powers base metals as a commodity also suffer in times of economic weakness and as a result copper, lead, nickel and zinc all fell in the last quarter of 2007.

That said tight supply, particularly in copper, coupled with strong demand outside of the US should mean that base metals have a firm standing in the long term. That said if the American economic problems spread across global markets this outlook could swiftly change.

Mergers in industry related firms could be the trend of 2008 with rising costs, labour shortages and generation of cashflow fostering the perfect conditions for mergers.

Agriculture:
Many market experts believe the rally in agricultural prices may be only the beginning, and if the trends of metals and energy were seen in agricultural fields then the price of soybeans could rise another 80%.

In real terms, agricultural prices are still very, very cheap,” said Deutsche Bank’s Mr Lewis.

In 2008 world wheat stocks are expected to hit a 30 year low, partly due to heavy droughts in Australia which halved the winter wheat crop by 12 million tonnes. With poor harvests such as this, low inventories and growing demand through bio fuels, soft commodities look set to be well supported in 2008.