Interview William Middelkoop
'More expensive commodities indicator of inflation wave'
With rising prices, global commodity markets are unsettled. Agricultural commodities have also become more expensive in recent months, with prices reaching their highest levels in 10 years. Boerenbusiness spoke with Willem Middelkoop, commodities expert and seasoned investor in commodities, about what is going on and what the consequences are for the Netherlands.
You posted the Tweet below. Why do you fear inflation?
“A rise in the price of agricultural commodities, as reflected in the Bloomberg Agri Spot Index, is part of a broader trend underway in commodities markets. Metals, oil and other commodities have already risen sharply this year. is an indicator of an imminent global wave of inflation. Inflation has a negative impact on purchasing power and thus on economic growth. The past shows that once an inflation wave has set in, it often lasts for a longer period of time."
Will we also notice this in the Netherlands?
"Yes, inflation also has consequences for us. Food inflation plays only a relatively limited role for the Dutch consumer. Food is often only a small part of total expenditure. But we see prices rising across a very broad front, which means that the energy and transport costs for many."
Do we notice more of the high grain prices in agriculture?
"Internationally, the main focus is on maize, soy and wheat. These crops play only a minor role in Dutch agriculture. Potatoes and onions are much more important. The markets for potatoes or onions are more or less manipulated. Compared to the "large commodities markets only have a limited number of players active, with power being distributed unequally. Large retailers more or less determine what is paid. Farmers struggle to make money from their products while supermarkets make record profits."
In years of high grain prices, such as 2008 and 2010, oil was also expensive, approaching or above $100 a barrel. Why is the oil price lagging now?
I wouldn't say that. More than a year ago, the storage facilities were full and we had a negative oil price for a while. Money had to be paid to supply oil. If you look at that, we have already had a huge price jump to get to the approximately $70 per barrel we are now. In percentage terms, that last step from $70 to $100 per barrel is relatively small. If the global economy recovers as is currently expected, I'd say we'll be hitting $12 again in 100 months."
"There is something else going on in the oil market, by the way. For years we have been talking about the peak oil supply, the moment when maximum oil production is reached and after which production only decreases. But the energy transition is in full swing. "Logistics are really starting to take shape. Transport accounts for about half of global oil demand and industry for the other half. With electrification on the way, we can therefore better look at the peak oil demand for the oil market."
What role do speculators and investors play in the current commodities rally?
"Governments have been pumping large amounts of money into the market for a long time. Since the outbreak of the corona crisis, this has become even more so with support programs to keep the economy going. That money has to go somewhere. It can be bonds or shares, but also commodities. Commodities alone do not yield any dividends or interest, so speculators mainly buy the undervalued commodities, which they expect the price to rise to make a return on investment."
Jurphaas Lugtenburg
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