Thursday, June 21, 2012

This is the best commodity bet in emerging markets like India

So what do you think is the best commodity bet in the emerging markets in recent times? If you think it is gold or even oil, think again. It seems that opportunity lies in palm oil. Let us look at the demand side first. Emerging markets have grown at a stupendous rate in the past few years. With this, incomes have also swelled. This in turn has fuelled the demand for food rich in calories and saturated fats. This is where palm oil comes in. In fact, global demand for palm oil has risen by a CAGR of 7% for the past 10 years. Prices have tripled.

Further, palm oil is more than 10 times more efficient per acre than soybean oil and 7 to 8 times more efficient than rapeseed oil. Every acre of palm planted yields nearly 11 times the volume of soybean oil and 7 times the rapeseed oil. Total land under cultivation is somewhere around 15 m hectares. This is less than 2% of that which is dedicated to soybean production. On the supply front, Indonesia and Malaysia produce 87% of the world's palm oil followed by Thailand and Nigeria. Countries such as Kenya and Brazil are also ramping up production. Thus, in a world where there are still millions to be fed, palm oil could be one commodity that could achieve this simply because it yields more energy per acre. And hence, this is a commodity that should be on everyone's radar.

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