In 2007, the ETFS Agricultural tracker rose by more than 30 per cent and soybean prices increased by over 65 per cent. Remaining bullish on soybeans, corn and rough rice, I will also increase my bets on a few soft commodities left behind last year. On a 12-month view, I see them gaining at least 20 per cent each, gains that stock markets will find hard to match.

Let us recap
The global population is exploding and exponential increases in demand from countries such as China and India are straining a system already overloaded by demand and difficult farming conditions. The wheat crop was hit especially hard in 2007 as droughts, floods, disease and even frost took their toll. Wheat has risen to $10 a bushel, and $13 is possible later this year. Meanwhile, the soybean complex and palm oil are also soaring, with pent-up demand, especially from China, keeping this market well supported.

So not only do we have exponentially higher demand for soybeans, wheat, corn and rice from a growing world population, we have the increased feed demands of a growing cattle population in answer to more demand for beef and pork. Soybeans and corn are also beneficiaries of the biofuel boom.

Combine these factors and throw in a little disease and bad weather in 2008 and everything points to higher prices. Moreover, fertilizer prices have increased sharply in line with oil prices. Many have been writing about peak oil and global warming – well in my view what is even more important is ‘peak food’ and I really cannot see a quick fix to this.

Cotton could rise
To see a big gain, cotton should be helped by an oil price remaining high. Many synthetic fabrics use oil and we should see a switch to more cotton clothing. Cotton is fairly bombed out at 68 cents per pound. I am looking for 95 cents plus this year – trade via a spread bet or buy via a stockbroker using ETFS Cotton Ticker LSE: COTN.

Turning to that unloved commodity, sugar, many forget that it can be used for ethanol and is in fact a very good fuel substitute. Worldwide consumption of sugar in food is also increasing, as is the calorie intake of the Chinese and Indians as they move to richer and more processed foods. We have finally broken over the ten cents per pound mark and I am looking for 15 to 17 cents to be hit in 2008. You can spread bet sugar or buy via a stockbroker using ETFS Sugar ticker LSE:SUGA.

If you fancy making a simple one-trade purchase and forgetting about it for the next 12 months, buy the Forward Agriculture ETF listed in the LSE: FAGR, which is a basket of the following commodities: soybeans 28 per cent, wheat 23 per cent, corn 15 per cent, cotton ten per cent, soybean oil ten per cent, coffee eight per cent and sugar seven per cent. The ETF, based on three-month forward contracts, was recently trading at $13 a share.

While I am still confident on these commodities, you should expect some volatility along the way as nothing goes in a straight line. Buying and holding an ETF takes away the worry of day-to-day volatility and having to roll contracts over.

Bull run ends for FTSE 250
I have been a fan of the FTSE 250, which has had a great run since 2003. The trend has now changed and the outlook for medium-sized companies is not good. I have closed out all of my FTSE 250 long trades and started to go short. Even if the FTSE 100 continues to hold up I see a divergence, with the FTSE 250 going lower in 2008. As traders, we must be happy to turn from bullish to bearish and profit from both sides. IG Index offers a spread bet on the FTSE 250. Another way to short the second line index is to buy a covered warrant put with SG warrants – have a look at the SA39 12,000 PUT, which expires in June 2008.

I am looking for the FTSE 250 to drop by around 2,000 points over the next 12 to 18 months. Since 2003, we have come from 3,624 to the high of 12,220. We have since moved back to 10,200. Of course, the FTSE 250 will not drop 2,000 points in a straight line, but I can see the market moving back, in steps, to the 8,000 mark, erasing the last few years’ gains.

Vince Stanzione has produced a home-study course to teach private investors how to benefit from trading financial spread bets and fixed odds, priced at £347. For more details, visit www.fintrader.net or call 01189 476630.