Soft commodities seen outperforming other assets

LONDON (Reuters) - Soft commodities will likely outperform other commodity asset classes over the next five years, in large part due to their ties to energy, a senior sugar trader said on Tuesday.

Jonathan Boyden, head of sugar trading at Ambrian Capital, said soft commodity prices had risen by 29 percent in the past five years -- less impressive than base metals (up 454 percent), precious metals (up 168 percent), and grains (up 116 percent).

But softs futures -- sugar, coffee and cocoa -- have soared by more than 20 percent since the start of 2008, powered by investment funds and speculators which are seeking big returns in agricultural commodities.

"A lot of the driving force in softs is a pick-up of what has happened in energy," Boyden said. "It's not just about food any more."

He was referring to the increased use of Brazilian sugarcane to make ethanol biofuel, a green alternative to costly fossil fuel with oil not far below $100 a barrel.

"Given what is going on in China (in terms of its demand for commodities), and given what is going on in energy, softs will probably be an outperformer," he added.

Boyden said softs had benefited from an outflow of managed money into commodities away from poorly performing equities.

He said the gap between price peaks and troughs of soft commodity futures and their values based on market fundamentals, was likely to widen due to increased price volatility driven by investment funds.

The two-day conference is organised by Agra Informa Ltd.