Soft Commodities

By Meera Patel | 25 Mar, 2008 

The term ‘soft commodities’ basically refers to commodities that are grown rather than mined. Coffee, cocoa, sugar, wheat, and corn are examples of soft commodities while metals, oil and coal are known as ‘hard commodities’.

There has been a great deal of coverage in the recent press about soft commodities, as prices have been hitting new highs. The price of wheat recently jumped 25% in one day. This was the biggest one day increase ever, demonstrating the volatility in the sector.

With increasing demand from emerging markets and a lack of supply, the prices of many soft commodities have increased rapidly over the last year. Supplies of wheat for example have become scarce due to extreme weather conditions damaging crops in Australia, Canada and the European Union. Countries like Kazakhstan, one of the world’s largest exporter of wheat, is planning to impose export tariffs to curb sales and this is likely to keep prices strong.

Coffee is another example. Consumption is rising faster than production and coffee stockpiles are now the lowest on record so the price has risen. Kenya is a big exporter of coffee and tea, but the recent unrest has caused disruptions to supplies which has also lead to a rise in prices. There is also a boom in biofuels especially at a time when other fuels become expensive so we believe that the overall sector is looking increasingly attractive in the current environment.

Investing in soft commodities is high risk. The value of the fund will fall as well as rise, so a long term horizon is essential. If the concept of this specialist sector is of interest to you, we believe the CF Eclectica Agriculture Fund is well placed to benefit. The fund is set to play the agricultural theme through investing in the shares of food, farm machinery, fertilizer and infrastructure companies. While increases in soft commodity prices will benefit the fund, there is greater diversity in that the fund looks to capture the growth opportunities across the breadth of the agricultural sector.

Key features and further information - CF Eclectica Agriculture fund