COMMENTAR Y
lose. When food prices fall due to falling biofuel demand expect farmland prices to follow suit. If interest rates were to rise at the same time the fall in farmland values could be acute.
Another effect that will be felt is that countries will lose their feeling of energy insecurity and so geopolitically the world would hopefully be much more stable. There will be other changes: solar power will be the foundation of industrial development in the Middle East, Arabia and parts of Africa, creating energy-rich economies able to thrive long-term due to that critical irradiance advantage. Other winners are high-irradiance African countries with hydropower, one of which will probably be the fi rst 100% renewable power country. The ambition is that Africa will eventually be the fi rst 100% renewable continent with solar, hydro and wind power all adding to the mix.
Future energy prices will become less vulnerable to war or turmoil and future global GDP will be higher due to lower energy prices in much the same way low interest rates accelerate and support global growth today. This strong global GDP growth means that demand for base metals, particularly copper, will be higher, while demand for platinum- group metals (PGMs) longer-term should fall as soon as cars go truly electric – unless new battery technology requires more PGMs. Many companies will see their value fall, while other companies who manage the transition into distributed generation or who own relevant technology patents will see their value soar like the internet companies of recent years, except their prices will refl ect real value.
A fi nal idea on the investment front for commodity traders is that technological innovation will in the future, as in the past, repress long-term commodity
price infl ation. If in general long-term energy prices fall, and with them grain prices, then it is hard to escape the belief that the long-term long-only commodity products will do very badly indeed. Not only will these products not keep up with infl ation, but their roll yields will be negative. This will be particularly true when battery-powered cars become endemic, reducing oil demand and increasing oil storage utilization. The roll yield will probably be very negative indeed as oil producers lag consumers, putting stress on inventory storage availability. The long-only commodity products are heavily weighted to the one commodity genuinely capable of a super- contango: oil. Technological innovation means there is essentially no longer an intellectual argument for long-only commodity products based on their ability to counteract long-term infl ation. Any investor invested in these products not for the long-term is now a market timer. THFJ
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