CRUDE oil, rice, corn and copper traded near records on speculation global supplies may not be enough to meet demand and as the weaker dollar increased the appeal of commodities as alternative investments.
Oil rose to within one cent of the record US$112.21 a barrel reached in New York on Wednesday after the Energy Department reported a drop in US crude supplies. Corn and rice advanced on falling stockpiles.
"The food price increase is of grave concern particularly for countries that have to import foods and don't have their own energy supply," billionaire investor George Soros said yesterday. That's "forcing potential social and political disruptions."
Rising food and fuel costs triggered protests in countries around the world, such as Burkina Faso, Egypt, Indonesia, Ivory Coast, Senegal, and most recently Haiti, where several people died in riots, according to the United Nations. The World Bank says 33 countries from Mexico to Yemen may face social unrest.
Commodities are posting their seventh year of gains. The UBS Bloomberg Constant Maturity Commodity Index rose 36 percent in the past year. A "tidal wave" of US$70 billion poured into commodity markets this year, bringing total investments to US$400 billion, Citigroup Inc said in a report this week.
"Speculators are adding to the upward volatility" in commodities, Justin Smirk, senior economist at Westpac Banking Corp in Sydney, said by telephone yesterday.
Crude oil for May delivery traded at US$111.45 a barrel at 12:19pm in London. The most active contract is up 80 percent from a year ago. The 3.1-million-barrel drop in crude stockpiles sent the price up as much as 3.4 percent yesterday.
The dollar fell against 12 of the 16 most-actively traded currencies yesterday on bets the Federal Reserve will cut borrowing costs this month. A declining dollar makes dollar-denominated commodities less expensive for holders of other currencies.
"Commodity prices are going the wrong way," said Simon Johnson, chief economist at the International Monetary Fund, in an interview on Bloomberg Radio. "Whenever global growth slows down, you'd expect commodity prices to fall. If it's a substantial global slowdown, commodity prices would fall somewhere in the order of 30 percent."
Rice, the staple food for half the world, advanced as much as 2.3 percent to US$21.18 per 100 pounds in Chicago.