Wheat, soybean may extend gains in 2008

Wheat and soybeans, the best- performing agricultural commodities last year, may rise further in 2008 along with corn as growing demand for the commodities for food and biofuels continues to outstrip supply.

Demand for food from China and India, the fastest-growing major economies, will continue to increase, while the mandatory use of biofuels in Europe and the Americas will lead to a "new source of demand," Sunny Verghese, chief executive officer at Olam International, said in an interview in Singapore today.

Corn rose 17 per cent last year, its third straight annual gain, as global demand for livestock feed and ethanol exceeded supply. Soybeans gained 78 per cent and touched a 34-year high at $12.48 a bushel on December 28, while wheat soared 77 per cent to a record $10.095 a bushel on December 17.

"Large corn demand from the ethanol sector would lead to less acreage for wheat and soybeans in the US, while drought in Australia will result in a lower wheat crop," Verghese said. "Soybeans have the largest potential for further price increases within the oilseed complex."

Corn prices in Chicago may average $5.30-$5.50 a bushel this year, compared with an average $3.8075 a bushel in 2007, he said. Chicago wheat prices may average $10 a bushel, compared with last year's average of $6.5875 a bushel, Verghese said.

'Tight supply'

Soybean output fell about 18 per cent last year in the US, which accounts for about 35 per cent of the world's production, according to Verghese.

"The whole world's edible oil supply is very tight," he said. Production of the 10 major edible oils may fall 4 per cent this year even as demand rises, Verghese said.

Chinese palm oil demand is forecast to rise to 6 million tonnes this year from 4.6 million tonnes in 2007. Global demand for palm oil is forecast to rise to 40 million tonens in 2008 from 37 million tonnes last year, driven by both food and fuel demand.

"That's fairly significant growth," Verghese said.

Still, palm oil is "fairly priced" after a 54 per cent rally in 2007, Verghese said.

"It's very closely linked to crude oil prices, so if crude oil stays between $95-$105 a barrel as Goldman Sachs forecast, we think palm oil should track that and be somewhere around $875- $900 over 2008," he said.