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Leading Corporate Investment Bank Societe Generale said investor interest in tapping into the farm commodities boom through exchange traded products has staged a sharp recovery bringing net inflows of some US$400m in the last two months of 2010. Crops lagged in terms of investment flows behind hard commodities for most of last year in the market for exchange traded products or ETPs easy to deal instruments designed to mirror the performance of an underlying asset such as corn or gold or a range of them.
Precious metals are by far the largest category in exchange traded products and they continue to attract most of the inflows Societe Generale said. However crop ETPs fought back from a weak summer performance which saw net outflows of nearly US$400m in May alone the month before setbacks to crops in Canada and Russia raised the alarm over food commodity supplies. Net inflows into the segment in December alone came in at approaching $300m mirroring the jump in prices of food commodity futures.
Nonetheless this injection was insufficient to prevent agricultural commodity ETPs overall reporting a net outflow of some US$500m for the year. Societe Generale attributed the increasing popularity of commodity ETPs which overall attracted net inflows of nearly US$23bn last year to both hopes for the improved perspective for world economic growth and fears over the impact on inflation. The rally in commodity prices has been significant and directly associated with the expected pick up in demand the bank said. But reallocation to protect against inflation has clearly played a role as well. Prices of assets such as commodities have a big say in calculating inflation rates and so are seen as vehicles for protecting the value of capital in times of steep price rises.