Crop prices should do better than most commodities in the wreckage left at the end of the long-term commodity boom, says a leading predictor of market bubble collapses.
As a result, farmers shouldn’t see prices weaken much further from today’s levels.
“Prices for these commodities may not necessarily surge right away, but I don’t see them dropping much more from this point,” said Jesse Colombo, an independent market analyst and contributor to Forbes magazine.
“Agricultural commodities … have had a lot of their (quantitative easing) froth let out in the past year or so, and I am actually bullish on them in the longer run due to ongoing monetary debasement, rising population and decreasing supply of quality arable land (and) water supplies.”
Quantatitive easing was the U.S. Federal Reserve’s policy of increasing the money supply by buying billions of dollars of bonds a month. The program is now wrapping up, but the European central bank is planning something similar to boost that bloc’s economy.
Colombo believes commodities such as iron ore, coal and copper are still significantly overvalued and should expect further drops along with most of the commodities complex.
“I am primarily bearish on industrial commodities … that have been in heavy demand from China,” said Colombo, who began warning about a multitude of post-2009 market bubbles in 2011.
“They’ve been building scores of empty cities and other grandiose infrastructure projects. I believe China’s growth is fueled by a credit and asset bubble, and the popping of it will decrease demand for those growth-sensitive commodities.”
Colombo expected governments around the world to continue to flush money into their economies, cheapening their currencies’ values. However, crop prices will maintain their values and rise in price because “demand for food is relatively inelastic compared to economically sensitive commodities such as copper.”