Agriculture price gains could last three years

Agriculture prices may rise for another two or three years, with raw sugar jumping 20 per cent this year because of demand for the sweetener to make ethanol, according to Commerzbank AG.

"This cycle is pretty young right now, it's not even two years old compared to other sectors like industrial metals, precious metals or energy,'' Eugen Weinberg, a commodities analyst at Commerzbank in Frankfurt, told Bloomberg Television. "We are right at the beginning of the cycle.''

Wheat has doubled in a year, compared with a 33 per cent rise in the UBS Bloomberg Constant Maturity Commodity Index of 26 commodities including platinum and crude oil.

Corn, raw sugar and cotton have the most to gain this year, while wheat may lag behind as farmers raise production, Weinberg said.

Corn may exceed $5 a bushel this year from about $4.66 now and cotton may advance to 80 cents a pound by 2010 from about 68 cents, he said.

"Raw sugar could go up as much as 20 cents'' over the next three years, from about 11 cents, he said. Prices may exceed 13 cents by the end of this year, Weinberg said.

Farmers will probably switch acreage to wheat and soybeans this year, leading to reduced production of corn and cotton, Weinberg said.

Wheat and soybeans gained more than 75 per cent last year, while cotton increased 21 per cent and corn rose 17 per cent.

"Production of corn this year will be lower than expected, and therefore I expect higher prices,'' Weinberg said.

Demand for alternative fuels because of rising crude oil costs will add to gains for sugar and corn used to make ethanol, he said. As consumers in Asia eat more meat, oils and fats, more grains will go to feed cattle and pigs, adding to supply pressures, the analyst said. It takes as much as 10 pounds of soybeans or other grains to produce one pound of meat, he said.

Cotton will also benefit from higher energy costs as textile manufacturers switch from oil-based polyester, Weinberg said.

"The production costs for polyester are going higher and therefore the demand for the alternative, for cotton, is also growing,'' he said.

Cocoa is forecast to rise to $2,500 a metric tonne by 2010 from about $2,100, largely because of increased demand for chocolate in Asia, he said. ( Gulf )

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