Moreover, other factors, which will push the prices are low stock levels, unfavourable weather conditions and competition for acreage.
According to a report by UK-based Economist Intelligence Unit, the commodity price boom is far from over and will continue in 2008-09. In 2007 alone, the food, feedstuffs and beverages index is set to rise by 16 per cent.
The fundamentals for grains and oilseeds have become increasingly bullish and prices will rise higher and for longer than previously expected as stocks remain low. By contrast, the beverages and sugar markets look weak, with supply starting to run ahead of demand, the report adds.
Grains and oilseeds will lead the surge with an average price rise of 16 per cent and 29 per cent respectively, this year. The report says that in 2008, grains and oilseeds markets will further rise by another 5 per cent.
In 2009, oilseed prices will rise by 2 per cent amid further supply pressures, as farmers switch to grains in China, to sugarcane in Brazil and to maize in the US. Grain prices will rise by 4 per cent in 2009, amid continued shortages.
The rising demand from ethanol and biodiesel industries are pushing up the demand for crops including maize, soybeans and palm oil. The report adds that lack of available land and adverse weather conditions are putting the breaks on sufficient rise in crop output.
This will lead to lesser stocks followed by inevitable rise in prices with knock-on effects on substitute crops and end-use sectors such as livestock and dairy.
The beverages price index is also expected to rise by 10 per cent this year, but next year it will fall by almost the same amount as producers are responding to the attractive prices. EIU says that by 2008, production in beverages sector will overtake consumption leading to price ease.
Sugar is the only commodity, whose price index is forecast to slip in 2007. Oversupply due to surge in key producing areas will keep the prices low till 2008. In 2009, sugar prices are expected to rise by 7 per cent on the back of demand from biofuel.
