Despite weather events hitting production of soft commodities, the performance of some has not been as good as expected, with the S&P GSCI Coffee Spot index falling 4.3 per cent in the year to April 14.
Mr Shah points out: “Lots of produce comes from countries like Brazil and some African countries where the currencies have depreciated against the US dollar.
“Farmers have been willing to sell into the market because they’re not seeing the price of their agricultural commodities fall as rapidly as we’re seeing in the rest of the world. Coffee has had two years of back-to-back deficits in production, but farmers are selling reserves because prices are stable in Brazilian Real terms.”
But not all soft commodities have performed badly. Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones Indices, says that in the past 10 years cocoa has been a clear winner, mainly from the growing demand for high-quality chocolate in China.
Ms Gunzberg explains: “Demand for cocoa butter has left an imbalance between butter and powder, causing a supply disruption.
“Cocoa has provided strong downside protection: it was up 27 per cent in 2008 and is the only commodity to have been positive in each of the past three years, gaining a total of 37.5 per cent, when the S&P GSCI had its first three-year losing streak ever. There has been little correlation between the constituents of the softs that include cocoa, coffee, cotton and sugar.
“Supply disruptions are unique to each industry – including weather and pests – making the case for holding a basket rather than a single [commodity]. However, cocoa is the only commodity in softs that does not benefit from El Niño.”
Nyree Stewart is features editor at Investment Adviser
