Asian soy, palm prices seen to dive by 25 percent

Prices of soft commodities such as soy and palm oil may see sharp retractions by as much as 25 percent in the coming year as suppliers try to increase production and keep up with demand.

Analysts said the recent spike in commodity prices was partly due to an influx of speculative funds using commodities as an inflationary hedge.

Adrian Koh Associate, Asian Commodities, Phillip Futures, said many people will think that commodity prices have actually risen quite a bit. Yet, it still has some more to go before it comes back down because what the market usually sees is a commodity bull run that lasts 10 to 15 years. So, the market is probably running about eight to 10 years.

Corn prices have risen some 58 percent in the last year, with soy oil rising by over 36 percent and crude palm oil rising by over 16 per cent.

However analysts expect the prices of soft commodities like palm oil and soy to drop due to suppliers increasing production to keep up with demand, which in turn creates a surplus in output.

For investors looking to tap into the commodities boom, market observers said some bargains may still be found in the stock market, including shares like Singapore-listed China Milk.

Although soft commodities may be in for a dip, industry players said agricultural options connected with the sector such as fertilizer manufacturers may continue to perform well and remain an important theme for investors.