You'd have to twist commodities high priest Jim Rogers' arm pretty hard to persuade him to bet heavily on precious metals in 2007, even though he doesn't particularly dislike their prospects.
"If I had to buy a metal, I'd buy silver, palladium, gold, I guess in that order," the creator of the Rogers international commodities index -- and its constituent energy, metals and agricultural indexes -- said recently when reached in New York. "But I don't have to buy any of them, so I'm not."
Instead, Mr. Rogers, who first gained fame as a partner of investing legend George Soros, is continuing to thump the tub for agriculture, which has accounted for about 35 per cent of the index since he launched it in 1998. "I expect that to be the place to be," he said.
He is not alone.
Commodities analyst John Normand at J.P. Morgan Securities Ltd., recently pegged agriculture as his top sectoral bet for 2007, followed by the precious metals Mr. Rogers plans to eschew. Energy and base metals will, by contrast, be the lowest-performing sectors, Mr. Normand said in a report.
"Low inventory levels and ongoing focus on [crop-derived] alternative fuels favour higher prices in 2007, even after this year's gains," he said of agriculture, noting that the sector has been "the laggard" through the current commodity price cycle. "Corn has the most upside . . . followed by wheat and soybeans."
After rocketing skywards for pretty much four years straight, commodity prices took a hit in the general global market correction that began in mid May of this year.
The Rogers index, for instance, climbed from a November, 2001, low of 1,245 points to a peak of 3,831 last May 11, then dropped as far as 3,198 at the beginning of October. It is currently in the 3,400 to 3,500 range.
Bank of Nova Scotia's commodity price index has traced a similar pattern, and currently sits 4.3 per cent higher than a year ago.
"In November, the index rallied quite sharply after a couple of months of weakness, and it's only 1 per cent below the . . . all-time peak," said Patricia Mohr, a vice-president who heads commodity research at the bank.
She also figures that, barring any major shocks, "we might retest the high at some point early next year."
But not led by the same commodities. Metals and minerals have supplanted oil and gas as the index's leaders, with gains of more than 50-per-cent as of last month.
By contrast, natural gas has gone from hero to zero.
In 2005, it led all commodities futures, with a 111-per-cent price gain -- as measured on the Goldman Sachs Commodity Index -- with much of the surge coming in the wake of the destruction of hurricane Katrina. But this year, in the absence of a ruinous storm season, its futures have been the worst performers, dropping 73 per cent.
Meanwhile, crude oil, which climbed from the low $40s (U.S.) a barrel to nearly $70 in 2005, cracked $77 in July of this year. But it then fell to less than $56 last month and is currently fetching a little over $63.
Strategists at Merrill Lynch & Co. recently lowered their 2007 price forecast for West Texas Intermediate to $60 a barrel from $65, citing decelerating global demand, high inventories and the rapid expansion of biofuel production.
They have, however, raised their 2008 forecast to $62 a barrel from $50, saying they expect global demand to strengthen and non-OPEC production growth to slow.
Bank of Montreal commodities specialist Bart Melek figures that OPEC members are likely to exhibit more discipline than they have in the past in an effort to keep prices up. "I think we have a new paradigm within OPEC: they want to keep prices at $60," he said. "They've gotten used to the revenues, and they've found out it doesn't kill their economy."
Ms. Mohr is betting that uranium will outperform all other commodities in 2007. The nuclear fuel, which just six years ago was fetching only $7.10 a pound, recently hit a startling $72, up nearly 10 per cent in a single week, as hedge funds and other financial players continue to make their presence felt.
Ms. Mohr now figures the fissile metal will average about $80 a pound in 2007 and finish the year close to $90. The rest of her top picks for next year are, in descending order, zinc, silver, canola, barley and gold.
Toronto-Dominion Bank economist Derek Burleton is less sanguine about the price outlook for commodities, at least in the first half of 2007.
He is forecasting that the TD commodity index will lose between 5 per cent and 7 per cent in the first six months of the year.
Mr. Burleton is expecting a drop of 25-per-cent to 30-per-cent in the prices of most base metals in the first half, after watching many of them follow "virtually a straight line up" in 2006.
"I definitely am of the view that the fundamentals for most base metals markets remain very strong, but I just believe that the current level of prices won't be sustained in 2007 and that we will get a pull-back," he said.
Zinc will be in the best position to weather the storm, he added, while nickel and copper likely will experience "sharper declines."
However, Mr. Burleton expects base metals prices to recover enough in the second half to leave the TD commodity index a little higher than it is right now. In TD's view, the U.S. economy is unlikely to suffer more than a temporary slowdown, and it also sees continued robust demand coming especially from China and India.
Mr. Burleton also figures there may be some good news in store for Canada's beleaguered forest products industry.
It has been hammered hard by the popping of the U.S. housing bubble, with lumber falling to as low as $229 per thousand board feet in late October, which he described as "depression levels."
However, history shows that lumber prices generally do not stay below $300 per thousand board feet -- roughly break-even for the industry at large -- for very long, he said.
"We've got [the price] heading back above $300 by the second quarter and staying there for the rest of the year," he said.
