Farm products may take over from oil and base metals to become the next hot commodity market, boosted by strong demand from a booming biofuel sector, a senior analyst said on Friday.
James Gutman, executive director and senior commodities analyst at Goldman Sachs, told Reuters so-far underperforming agricultural markets might again become very attractive to investors.
"Five years from now we could be looking at a grain market that looks a lot like the oil market today," he said on the sidelines of a commodities outlook presentation in Paris.
"How you get from here to there in five years may depend on a lot of details and twists and turns and unforecastable events, but what it suggest to me is that it might really be the next big story," he added.
Oil and base metals markets had surged over the past few years, with copper, zinc, aluminium, nickel and platinum racing to record peaks last month, while gold and silver had touched their highest in a quarter of a century.
While agriculture prices had also recently touched record highs, mainly buoyed by a leap in global commodity prices, the sector had generally under-performed other markets.
"Historically agricultural commodities have had a very poor performance because there's consistently been so much oversupply," he said, adding that this reflected government protection of farmers via, for example, the European Union's Common Agricultural Policy (CAP).
Agriculture markets in Goldman Sachs' reports cover mainly grains, oilseeds and soft commodities such as sugar, coffee and cocoa. Livestock is separate.
BIOFUEL PUSH:
Production of biofuels derived from sugar, grains or oilseeds had risen consistently as governments world-wide saw in these technologies a way to cut their dependence on imported oil, curb greenhouse gas emissions and boost local agriculture.
"Biofuels are potentially going to be a very important story," Gutman said, adding that he expected corn-based ethanol in the United States to attract most interest in the medium term.
"Sugar in Brazil has already happened," he said, adding that European Union biofuel development was at an early stage.
In the United States, the world's largest energy consumer, corn had been the biggest biofuel winner. The country already had 97 ethanol plants and 33 more were under construction.
"What biofuels do to the corn market is very interesting because if you sustain that pace of ethanol production...very quickly you start to run down corn inventories," Gutman said.
"And corn inventories already now are predicted to reach pretty low levels. That means there's potentially a lot of pressure that can build in the grain markets. "In the next few years agriculture will have its say."