Shares of companies that use raw materials will lag gains in the commodities because manufacturers and retailers won’t be able to fully pass on higher costs to customers, Lauren Polen, an analyst at New York-based Galtere, said in an interview in London on Nov. 10. Corn has jumped 36 percent this year, cotton is up 81 percent and soybeans climbed 21 percent.
“We definitely see a structural shift where you are going to have over the next 10 years real assets, commodities across the board, outperforming paper assets like equities,” Polen said. “Demand pull from emerging market countries is going to help sustain higher prices, so there is going to be a longer-term structural bull market.”
Increasing wealth in Brazil, India and China is boosting demand for grains, dairy, meat and cooking oils. The Standard & Poor’s GSCI Agriculture Index of eight futures climbed 29 percent this year, led by cotton, coffee, wheat and corn as floods in Canada, Pakistan and China and drought in Russia and across Europe killed crops. The economies of China and India, the biggest consumers of cooking oils, are growing at three times the speed of the U.S.
“Higher input costs typically get passed from retailers and manufacturers to consumers,” Polen said. “We believe that the current slowdown in developed market demand would mean that prices have less room to rise before sales begin to suffer.”
Polen said the U.S. Federal Reserve’s decision to pump an extra $600 billion into the economy by purchasing government bonds, known as quantitative easing, will benefit commodities.
The Galtere International Master Fund has $250 million in assets, and returned 5.1 percent this year to October, according to Werner Schuenemann, head of business development and investor relations in Zug, Switzerland. The remaining assets are in other commodities including metals and agriculture raw materials, he said.
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