Commodities: How to bridge the demand-supply gap

Africa is full of raw materials (oil, bauxite, timber, etc.); but this wealth is also a weakness because national economies are often based on only one of these resources. In addition, weak local processing industries and the global trade rules make states dependent on the North. The situation, of course, differs according to raw materials: development of oil production, fragility of cotton, for example. African exporters of agricultural products have not been lucky, because out of competition.

In particular, they saw the prices of their exports eroded in recent years, especially as the stock exchanges and financial markets that decide of the prices are elsewhere, and that African exporters have not yet reached vertically the right seats in the channels of decision making and business transactions. Obviously the lack of anticipation and the boldness lie behind the failed African entrepreneurship. These weaknesses will not help Africa to follow in advance the drops or the picks in the commodities’ prices. Actually experts are suspicious whether the declining real prices for commodities of the past half century have come to an end. Thus, the new normal situation can be expressed by quoting the Federal Reserve Chairman, Ben S. Bernanke: The current situation is “unusually uncertain”. After the 10% decline in production from the countries of the Black Sea, it’s time for German and Canadian crops to be expected in the fall. The three-month contract in Chicago has already taken 7% in September to reach $ 7.41 a bushel. The reorganisation of the complicated flow of exports to Australia and the United States primarily, and the lack of Russian export until 2011, should maintain wheat prices at high levels until 2011. Several other commodities have followed wheat, like sugar, coffee and oilseeds. The sugar price continues to rise, and the drought, that damaged the Brazilian cane and the Russian beet, is holding the price above the 20 cents in New York, and that trend will be maintained for the three or six months. The coffee is also continuing its historical rise: the price is 46% up since January, at $ 1.86 per pound in New York. Flooding problems encountered in Central America accounted for this increase. Soybeans followed with a 10% gain since June. The contract for two months is now traded at 10.3 U.S. dollars a bushel in Chicago. Despite the good U.S. harvest, demand from China, recently revised upward, triggered a surge in futures on the Dalian exchange. Prices remain at high levels for Chinese imports, supported by the rising consumers demands. They are expected to increase further in 2011. Other products are experiencing different scenarios, such as cotton and cocoa. Future three months on cotton, in New York, reached a high record in early September, to 89 cents a ball, and analysts are expecting an imminent correction. However, fundamentals remain bullish in medium-term: low inventories, the falling production in Pakistan, and particularly the Chinese dynamic demand will leave the prices above the 89 cents. The cocoa is reshaping its market conditions and recovering from the 14 % fall since January. The tone of a sustained recovery of course is given by the request announced by the Amro Bank broker. If the price goes beyond the $ 2,800, that would confirm the strength of this recovery.

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