View of the day: Commodity prices

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The current upswing in commodity prices is proving to be either the strongest or the longest-lasting on record, says Michael Lewis, head of commodities research at Deutsche Bank.

He points out that the crude oil price has surged 450 per cent in the current cycle, with the rally now more than six years old – making it the most powerful and durable ever.

“A similar distinction is held by copper, which had a trough-to-peak rise of 570 per cent between November 2001 and May 2006.”

Mr Lewis says that while the rally in gold and silver prices has not yet surpassed the rallies in the late 1970s in percentage terms, it has been the most durable on record as the cycle approaches its seventh year.

He says rallies in the agricultural sector tend to be less pronounced and shorter in duration than upswings in the energy and metals sectors – which possibly reflects the faster supply response in agriculture compared with other parts of the commodity complex.

The current rally in many agricultural commodity prices is still only close to historical averages in both magnitude and duration, Mr Lewis adds.

But he says inventories in a number of agricultural products have fallen to critically low levels at a time when global demand for food, cattle feed and biofuels is rapidly increasing. “We consequently believe the price rallies in corn, cotton, soyabeans and wheat are still in their infancy.”

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