Global Food Commodities Price Rise Predicted to Continue

The trend in price increase of global food commodities is predicted to continue until the end of 2011. The economic recovery of the US and climate change factor will raise demands for food commodities.

Futures contract price of several food commodities across the globe keeps rising. On last Thursday's trade, wheat contract price for May 2011 delivery at the Chicago Board of Trade increased by 0.75 percent to the level of US$ 876.5 per bushel. This price hits its highest level since 2008 at the level of US$ 917.75 per bushel on February 9, 2011. While corn contract price for May 2011 delivery at the Chicago Board of Trade also rose by 0.6 percent to the level of US$ 705.75 per bushel. The same occurred for soybean futures contract price for May 2011 delivery that went up 0.38 percent to the level of US$ 1,383.75 per ton.

Wahyu Tribowo Laksono, Research Chair of PT Asia Kapitalindo Futures, said that economic recovery in the United States has improved market players’ expectation towards global food commodities requirement. However, food supplies are decreasing due to climate changes. Drought in Russia and the flood in China and Australia, wheat-producing countries, have caused wheat price increase by US$ 10 since the beginning of this year. In fact, demands on food commodities are increasing since several countries facilitate the import of these commodities. “The price is rising because the demands climb-up,” said Wahyu, Thursday.

Wahyu predicts that wheat contract price will hit US$ 900 per bushel before reaching the psychological level of US$ 1,000 per bushel in 2011. Soybean contract price is also estimated to arrive at US$ 1,500 per ton in 2011. “Corn contract price at US$ 700 per bushel is already high. If it hits US$ 750 per bushel, the price will keep going up until US$ 800 per bushel,” added Wahyu.

Appeles Rizal Kawengian, Head of Business Development Division of Monex Investindo Futures, said that hike in food commodities price is also induced by inflation expectations in several countries. “Bad weather can cause crop failure, just like what happened in Australia, whereby many wheat fields are destroyed due to floods," said Rizal, Thursday.

Geo-political conflict taking place in the Middle East also affects the speculation over food commodities. Commodities become a hedging tool if other investment instruments are reducing. “Trend in price increase of food commodities for the first semester of 2011 will reach an average of seven percent," said Rizal.

This increment unfortunately has not been benefiting local investors since traded commodity contracts are only few. Indonesia Commodities Derivative Exchange (ICDX) trades Crude Palm Oil (CPO) contracts, while Bursa Berjangka Jakarta (BBJ) trades olein contract.

Monex, as the biggest broker at Bursa Berjangka Jakarta, recorded commodity transactions at 70,000 lots in January 2011 and 59,000 lots in February 2011. "Last year, the average of commodity transaction volume is 80,000 lots per month,” said Rizal.

Asia Kapitalindo Futures, also a broker at Bursa Berjangka Jakarta, does not have so many transactions over commodity contracts. “We transact more on index contract and foreign exchange,” said Wahyu. Currently, multilateral contract transactions at Bursa Berjangka, Jakarta, only contribute ten percent form the total trade volume. The rest of the 90 percent are over-the-counter transactions. Market players interested in global commodity transactions usually transact online at foreign futures exchange, such as in Kuala Lumpur or in London.