Soft Commodities: for the softies?

[56gsa]

lot of talk about the soft commodities getting big... latest airreview picks sugar and wheat due to inputs for biodiesel - others are saying China food imports in next decade will push demand for the soft commodities as well...

what stocks are best exposed to such a rise? eg CSR sugar. Are there diversified soft commodites stocks like diversified resources? Which ones look ago?

 

[NettAssets]

lot of talk about the soft commodities getting big... latest airreview picks sugar and wheat due to inputs for biodiesel -

I haven't read that airreview but if this is an acurate representation of the report it needs to be treated with caution.
Neither sugar nor wheat are inputs for biodiesel - both maybe inputs for ethanol.
Biodiesel inputs are oilseeds (mainly canola, soy and mustard) ,waste vegetable and animal oils ( eg used fryer oil) and rendering oil and tallow from abattoir waste.
I would stay out of the biodiesel market at the moment until the gov takes another look at the road tax treatment. The current treatment has pretty well killed any serious attempts at diesel blending for the transport industry if I am hearing it right.
John

 

[56gsa]

Part of Air review article below

What companies give you the best exposure to these commodities??
___________________________________________________________

Grains And Sugar, The New Oil?
July 28 2006 - Australasian Investment Review – (AIR)

It might be a bit fanciful, but can you imagine having to decide between a bread roll, a loaf of nice Italian pane di casa or a fruit loaf, or an extra litre of petrol?
Some would argue that that is the case at the moment with the CPI up 4 per cent in the 2005-2006 year, petrol at $1.48 a litre around Sydney and Melbourne this week, and bananas selling for more than $2.50 each.

But no I'm talking about when our daily loaf of bread, croissant, Italian roll or bowl of noodles might be so expensive that we have to choose very carefully: in fact a bit like buying bananas at the moment.

I know it does sound outlandish but there's an unanticipated consequence emerging from the high oil and fuel prices. It’s the rush to develop biofuels, especially biodiesel made from animal fats and or oil seeds, and ethanol made from grains or sugar; this ‘oil rush’ could very well be laying down the long term pricing pressures that one day force growers and food processors might want to hear right now: they might have to start making a choice at some stage in the not too distant future between growing and processing grains or sugar for human consumption, or for fuel.

And if governments don’t act, it could very well come down to a question of price: price of fossil oil and fuels compared to the price of the bio alternatives.

And that in turn could see the big food companies, processors, and trading groups competing with the likes of Shell, BP or Exxon, or with conflicts of interest between supplying the consumer food markets or the automotive or industrial markets.

And how would you like to be a politician deciding whether corn, wheat or sugar should go to the bread, beer, or meat industries, or into ethanol production because fossil oil prices are so high and car drivers want some respite?

As I said sounds fanciful, but the prospect is starting to loomlarge in some eyes and shouldn’t be dismissed.

The simple equation is that the longer fossil oil prices remain at these levels, or rise, the more attractive will be the production of biofuels: the amount to production of the various feedstocks is limited by land use, demand, pricing, and the number of farmers, water issues and environmental questions. In many cases it’s harder to grow more grain than it is to produce more oil.

And the longer this present situation continues the closer we move to where the choice may be between food or fuel: ethanol for the car or business produced from grains like wheat, corn/maize or even rice or sugar or biodiesel produced from palm oils, oil seeds (such as canola) or animal fats and tallow.


for more see

http://www.aireview.com.au/index.php?act=view&catid=6&id=4222



Copyright Australasian Investment Review.
AIR publishes a weekly magazine. Subscriptions are free at www.aireview.com.au

 

[56gsa]

this article suggests CSR is the only real Australia exposure to softies. I think Macquarie issued a warrant that covered the main resource stocks (BHP, WPL etc) - is there anything similar for soft commodities?
______________________________________________________

... So that's the stock-specific picture. But private client advisers are at their most interesting when they're sitting back and trying to work out the big macro-economic themes that will shape the future - and how to get exposure to them. And there's one theme that's occurred to all of them: soft commodities.

"Softs" are the forgotten story of the commodities boom. Everyone knows what's happening in gold, copper, iron ore; everyone from your children to your grandparents is suddenly an expert on Chinese demand for uranium. But softs - things like coffee, corn and cotton - are in many ways more alluring.

"I acknowledge the China and India growth story is the building of infrastructure, which inevitably requires base metals," Murphy says. "But in the next 10 to 20 years the challenge is going to be quite different because, as the standard of living improves and the percentage of the economies of these countries in the service sector increases, we're going to see a very dramatic change in diet. In China I would rather be invested in meat, fish and grain than zinc, nickel and lead."

Opie has the same idea. "Industrialisation is taking away from the rural community land that is needed to feed a growing population," he says. "There's increasing demand and decreasing supply."

And there's a growing interest in ethanol, with US President George Bush talking about trying to get 10 per cent of American cars to run on it, and Brazil aiming to have all its transport using the fuel. Ethanol's raw ingredients include sugar and corn. "There's a lot of interest from clients who've seen oil prices accelerating and the encouragement of ethanol as an alternative energy source," Cacciottolo says. "It's not something you'd put a large proportion of your portfolio in, but smart clients see it as a long-term strategic area."

The soft commodities theory is an example that shows where the well-advised wealthy have a considerable advantage. A retail investor who wants to act on the theory has very few options for capitalising on it. Australia has no major corn, fishery or abattoir stocks. You can buy CSL as a play on sugar, but CSL's revenues come from many more sources than that.

But for their clients, private banks can invent products that serve their needs. UBS recently launched a fund linked to a soft commodity index containing wheat, corn and cotton. It created a biofuels index at a global level with contracts based on 10 commodities such as wheat, lumber, rapeseed and soy-bean oil - feed stocks for ethanol and biodiesel. Merrill Lynch has a structured note for its clients tracking a basket of soft commodities using rolling futures. Deutsche looks for funds investing in unlisted grape, grain and other agricultural ventures so that it can put its clients into them.

Management

Running ahead of the herd
Everyone seems to be making money, so you need to seek top advisers for really high returns.

By Chris Wright
CFO. 01 July 2006

 

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