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Global food prices are rising again with the United Nations Food and Agriculture Organisation (FAO) food price index hitting 168 points in November, the fourth consecutive month of increase and the highest since September 2008.
While this is still about 21 per cent lower than the most recent peak in June 2008 when the index hit 213.5 points, FAO does note that the index has never exceeded 120 points prior to the price spike between 2007/2008.
Several reasons have been highlighted for the rising prices. However, FAO has possibly for the first time highlighted the ‘growing appetite by speculators and index funds for a wider commodity portfolio investments on the back of enormous global excess liquidity’, as exacerbating the situation.
This mirrors the view of World Bank president Robert Zoellick who said recently that with so much liquidity in global markets, ‘you could see additional moves towards the agricultural commodities sector if there were perceptions of market shortages’.
Speculation in agricultural commodities may not have reached fever pitch yet but with food shortages expected in 2010, it could.
Jim Rogers, one of the world’s most astute investors has been bullish on commodities in general for several years. On agricultural (or soft) commodities, he says: ‘Food inventories worldwide are at the lowest in decades as the world continues to consume more than it produces. We even have a shortage of farmers now since agriculture has been such a terrible business for three decades. We should all hope prices go higher or there may soon be a time when there will be little or no food at any price.’
Mr Rogers, who created his own commodities indices, has put his name to several index funds. The Elements Jim Rogers International Commodity Index Agriculture Total Return which is listed on the New York Stock Exchange has, for instance, risen by about 6 per cent since the start of 2009.
Interest in soft commodities has had an impact on prices.
‘Whenever there are buyers of anything, it affects the prices. For example, if you live in an apartment or house, you are affecting the price of housing in Singapore,’ adds Mr Rogers.
There are several ways to invest in soft commodities including the futures contracts on commodities exchanges like the Chicago Board of Trade (CBOT).
The index funds alluded to by the FAO include the more rarefied market of exchange traded funds (ETFs) that typically attract institutional investors.
There are more prosaic ways as well.
Jim Rogers has taught finance at Columbia University’s business school and is a media commentator worldwide. He is the author of Adventure Capitalist, Investment Biker, Hot Commodities, A Gift to My Children, and A Bull in China. See his website.