| CAPITALIZING ON MARKET DISTORSION |
| The surge in the price of commodities is related particularly to the dramatic reaction of investors in the market. Investors poured money into commodities on signs that global supply isn't keeping pace with demand and concern about the up going tensions between countries in Latin America, including Venezuela, one of the oil producing countries.For example, almost $1.5 billion flowed into farm commodities in the week to Feb. 19, 2008. Futures Price of crude oil surged to $105 a barrel on March 5, the highest since 1983 and a climb of 74% over a year period and some analysts forecast that the price will climb to $125 a barrel. The Organization of Petroleum Exporting Countries agreed to hold production steady at a meeting in Vienna on March 5, 2008. The US Energy Department said that crude-oil inventories in the USA were 7 percent above the five-year average in the week ended Feb. 22, but supplies dropped in the week ended Feb. 29, 2008. According to the USDA, wheat, soybeans, corn and palm oil are among commodities for which prices have touched records this month, pushing up the price of bread and pasta, particularly, worldwide. Chicago wheat prices for May delivery recorded a one-day 8 percent price increase on Feb 26, 2008. Global wheat stockpiles will probably fall to a 30-year low this year, while corn inventories are headed for the lowest since 1984, the U.S. Department of Agriculture said on Feb. 8. Stephen Platt, a future strategist for Archer Financial Services in Chicago said that sugar price is sensitive to oil prices and thus increased also. Price of white, or refined sugar has gained close to 36 percent this year and reached 15.07 cents a pound on March 3, 2008. But, analysts forecast that global sugar production will exceed demand by 2.86 million metric tons. Higher prices encouraged Brazilian millers to convert 46 percent of their cane output into sugar this year, up from 44 percent last year. Cocoa futures for May delivery rose 1.1 percent, to $2,819 a ton, the highest in five years. Cocoa farmers in Ivory Coast, the world's biggest cocoa grower, said the outlook for the coming mid-crop (the smaller of two annual harvests) is “good”. Cocoa deliveries to Ivory Coast's ports for shipment abroad more than doubled last week, according to exporters with access to the information. World coffee production of between 123 million and 125 million bags will be just enough to meet demand in the year to October 2009, according to the International Coffee Organization based in London. Global consumption will be 123 million bags (bag weighs 60 kilograms or 132 pounds). Global population and economic growth are the major forces driving increased world food demand. In spite of world population growth slowing from 1.26% (1996-2005) to1.10% (projected 2006-2015), it is anticipated that between 50 and 70 million people will be added annually to the world population until the mid 2030s. Almost all of this increase is expected to take place in developing countries especially the group of 50 least developed countries. food will be required to feed these increase in worldwide population and still 830 million undernourished world wide (FAO estimate of 2002-04). Income growth. urbanization and shifts in consumer preferences (natural and organic food) have changed dietary patterns particularly in emerging economies. As an example, total meat production in developing countries grew from 27 millions to 147 millions between 1970 and 2005 and expect to increase by 50% from the current level by 2030 (FAO, 2008). Increased meat and,aquaculture production will require more grains and oilseed meals to feed livestock. We should also mention that high oil prices are creating new markets for agricultural commodities that can be used as feedstock for the production of bio-fuels. The energy bill passed by Congress and signed by President Bush in December 2007 calls for refiners to replace 36 billion gallons of gasoline with ethanol by 2020, up from about 7 billion gallons today. About half of that will come from ethanol made with corn. Production of ethanol has increased considerably since 2004 and would continue to increase if Cargill did not stop the construction of its ethanol plant recently. Bio-fuels are being promoted as providing greater energy security reducing dependency upon international channels of supply, increasing rural incomes, lowering greenhouse gas emissions and providing economic opportunities for les developing countries. Increased revenues from the trade of commodities could be used to boost investment in the agricultural sector, expand the capacity of the world agricultural output and get prepared for the additional 50 to 70 millions people to the world population every year until 2030. The development of agriculture will face many challenges, among them: productive use of land, conservation of natural resources, funding for infrastructure building and rehabilitation, working capital, availability of enough water, adequate supply of fertilizers, technical assistance and effective marketing channels. Rapid increased in the global demand might create new opportunities for countries (particularly tropical countries) to trade agricultural and food products. However, countries with inefficient agro-industries are likely to be left behind those with modern and efficient agro-industries. According to the Food & Agriculture Organization (FAO), while high-income countries add, on average, US$180 of value by processing one ton of agricultural products, developing countries generate only US$40 of value per ton. India will host the first conference on Agro-Industries in New Delhi from April 8 to 11, 2008: The Global Agro-Industries forum will promote the importance of agro-industries for economic development and economic expansion. Increasing the market opportunities particularly for small-scale producers in rural areas, by improving their production, processing and marketing capabilities, will be one of the main issues of the conference. Delivering better products at lower prices could be beneficial for poor countries and could also create employment opportunities. Therefore, a large number of small-scale subsistence farmers in developing countries produce for consumption, do not participate in the market and are left behind by globalization. The challenge for less developing countries will be to establish agricultural policies that combine income generation and improved domestic food production. Success in the implementation of such policies depends upon private sector commitment. Less developing countries do indeed benefit from the liberalization of capital markets, particularly from the availability of large amount of Sovereign Wealth Funds which become more and more a country's investment arm. It seems that Sovereign Wealth Funds capitalize through exports or from the sale of commodities such as oil. They have injected funds into a range of American companies, for an estimate of $414 billion in 2007, up 90% from the year before, according to Rep. Luis Gutierrez, D-Ill., chair of the Subcommittee on Domestic and International Monetary Policy. Low developing countries have to improve their financial system and gain substantial economic benefits from opening a stock market to foreign investors and begin relying heavily on Sovereign Wealth funds also to raise billions dollars to finance their development. Foreign investors will share the risks but should be compensated by a risk premium in addition to the regular cost of capital. After World War II, there are a set of organizations (IMF including) created to deal with currency stability, international payments, economic reconstruction, international trade and investment and the advancement of less developed countries, but there is not yet any formal arrangements to drain and monitor private capital movements in less developed countries which have not implemented yet a stock market system. |