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The turmoil in the credit markets has taken its toll on most asset classes around the world in the past month or so.
However, a few markets have been noticeably exempt. One of the most obvious is agricultural - so-called soft' - commodities.
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Prices have continued to soar in these markets - particularly the price of wheat. The bad news for consumers - and the good news for those investing in soft commodities - is that the boom is likely to continue for a long time to come
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Most markets around the world have been pummelled by the credit crunch, but the prices of agricultural commodities have been merrily taking off. There are very good fundamental reasons for this.
As Sean Corrigan of commodities trader Diapason points out, "agricultural commodities were fairly oblivious to the credit rout as the age-old factors of flood, drought, frost, and disease interacted with the newer era influences of Asian meat and dairy consumption and Western biofuel promotion to keep, in particular, wheat and the European contracts extremely well bid."
That sums it up rather well.
The price of wheat has doubled since April, spurred by all the factors mentioned by Corrigan above crops being used for biofuels, and strong Asian demand - and a few others besides. India has swung from being a net exporter to a heavy importer of wheat in just the last year or so. Russia has warned it is considering curbing grain exports, while Australia's output is set to disappoint amid drought conditions.
The impact is already being felt on the UK high street. Premier Foods - maker of Hovis loaves - yesterday said that it was already passing rising costs onto supermarkets, leading one "major retailer" to hike the price of a loaf of white bread by 8p.
Chief executive Robert Schofield said: "We've had a general trend in the last 10 to 20 years in which food has got irrevocably cheaper. But we're now in a period of food inflation not seen since the early 1990s and it's not going to go away quickly."
Prices could rise even further. "Wed be surprised if general bread prices dont go up because the pressures upon us all are the same." Given that Premier is one of the UK's biggest food manufacturers, this seems a reasonable prediction.
It'll be an interesting tug of war between the producers and the retailers in the months ahead. Retailers may not feel able to pass all of the higher costs onto consumers - who are already feeling the pinch of rising interest rates - and it will represent a real opportunity to compete for custom. Normally, in those circumstances, it'd be the producers who felt the squeeze - as has happened in the recent past with rising energy input costs.
But when you get a structural shift like this in the production of a commodity, that tends to shift the power balance to the producers somewhat. Why? Because if there's an excess of production, then producers are keen to offload their goods and that puts the power in the retailers' hands. The supermarket knows that if supplier A won't deliver at the price it wants, it can go down the road to supplier B.
But if there's a genuine shortage, and prices just keep rising, then the supermarket has to think more carefully about how it deals with supplier A, because if it walks away, it may find that supplier B has become more expensive in the meantime, or has already done a deal with another supermarket.
Obviously, this all depends on a variety of factors, and we wouldn't be holding our breaths for a huge shift in pricing power away from supermarkets. But it's something to keep an eye on.
In any case, the softs boom looks like being around for some time. As Tom Stevenson says in The Telegraph this morning, "[Food] prices have tended to move in long cycles driven by extended periods of mismatched supply and demand if the balance has shifted again, we could be in for a long and painful adjustment."
Of course, you could ease some of that pain by investing in the sector. We'll be looking at rising food prices - and how to profit from them - in more detail in the latest issue of MoneyWeek, out on Friday. If you're not already a subscriber, you can sign up for a three-week free trial by clicking here: Sign up for a three-week free trial of MoneyWeek.
Turning to the wider markets
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Oil major Royal Dutch Shell led the FTSE 100 into the blue yesterday as the strong start on Wall Street lent support. Blue-chips added 61 points to close at 6,376, and the broader indices were also higher. Miner Kazakhmys was also amongst the top risers on the back of a 22% increase in interim profits. For a full market report, see: London market close.
On the Continent, the Paris CAC-40 added 21 points to end the day at 5,672, despite falls for carmakers Renault and Peugeot. And in Frankfurt, the DAX-30 was up 86 points to 7,721.
Across the Atlantic, stocks recovered from a shaky start to end the day with strong gains. The Dow Jones advanced 91 points, ending the day at 13,448. General Motors led the industrials index higher with a share price rise of nearly 4% after it confounded analysts' expectations with a 6% jump in light vehicle sales. The tech-rich Nasdaq was up 33 points at 2,630. And the broader S&P 500 was 15 points higher, at 1,489.
Asian markets were mixed today. Property stocks including Sumitomo Realty & Development dragged the Japanese Nikkei down 262 points to a close of 16,158. Whilst in Hong Kong, the Hang Seng had given up some of its earlier gains but was still 166 points higher overall, at 24,052.
Crude oil climbed over $1 yesterday to hit a one-month high and had risen further to $75.15 this morning. And in London, Brent spot had risen to $74.53.
Spot gold had fallen back to $681.00 this morning, having soared as high as $683.00 in New York yesterday - its highest level since July 24. And silver was unchanged at $12.30.
Turning to currencies, sterling was down to 2.0054 against the dollar and 1.4768 against the euro. Meanwhile, the dollar was at 0.7362 against the euro and 115.86 against the Japanese yen.
And in London this morning, a survey published by Nationwide revealed that UK consumer confidence has fallen to a four-month low. The index was down two points to 94 as the impact of interest rate hikes on people's willingness to spend began to kick in. The indices which measure perceptions of the economy now and in the future were also down.
And our recommended articles for today...
The summer credit crunch: what's next?
- Niels Jensen examines what the recent crisis will mean for the markets, from gold and small caps to hedge funds and private equity - and explains why your pension could be at risk - here: The summer credit crunch: what's next?
Tipping point for the US housing market
- Marc Lichtenfield reports back on the latest developments in the US housing market - and why he's urging anyone with a house to offload to sell as soon as possible. To find out why things could be about to get much worse, see: Tipping point for the US housing market
