Agriculture at the Forefront of 2009 Commodity Rebound

Secure demand and tight supplies put agricultural commodities in the lead.

After the dust settles from the sell off across commodities triggered by the global financial crisis, agricultural commodities, which will benefit from a secure demand outlook and tight supplies are expected to outperform metals and oil in 2009.

Regardless of the gloomy macroeconomic outlook people still need to eat; therefore agricultural commodities will be more resilient during the economic downturn.

"Demand for agricultural commodities tends to be less elastic, less responsive to economic factors, more responsive to population," said Lawrence Eagles, a commodities analyst at J.P. Morgan.

However lower agriculture prices and scarce and expensive credit may cause farmers to struggle to finance production. The recent drop in commodity prices has been a disincentive for farmers to reinvest in production. The agricultural markets may yet fall further, before staging a recovery due to the demise of some of the world's largest banks, which has caused a lack of confidence in capital markets.

Eagles says there's great potential for agricultural commodities to lead the way in a commodity market rebound.

"Prices are not going to be dictated by funds and fund flows next year," Eagles says. "It's going to be about the availability of trade finance and demand and supply."

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