Dan Brecher
Counsel
212-286-0747 dbrecher@sh-law.comFirm Insights
What are the Factors that Affect Commodity Markets?
Author: Dan Brecher
Date: March 31, 2014
Key Contacts
Back
Numerous factors impact the price range of commodities that are traded in the world market. Due to the massive volume of commodities traded daily, the commodities market is the world’s second largest market, second to the currency market. There are countless factors that impact the price fluctuations in the commodities market, primarily based upon supply and demand. A few other general factors are discussed below.
Weather conditions
When you consider that a large portion of commodities traded in the world market are agricultural goods, the weather plays a significant role in the price of such goods. Dramatic climatic changes directly impact the production and availability of food products, which drives the commodity price up or down accordingly.
For example, American states that produce corn can have their crops adversely affected by hurricanes. As a result, there will be shortages in the amount of corn produced, leading to price increases.
Extreme winter conditions increase the demand for heating oil, which is derived from crude. When winters are bitter or long-lasting, there is usually a significant increase in crude prices as the demand for heating oil increases.
International tensions
The economic and political relationships between the countries producing the commodities and those consuming them, directly affect the movement in prices. The obvious current example of the effect of the Ukraine crisis is the anticipated increase in the cost to Europe and to Russia), of cutting off the supply of natural gas to Europe that has flowed from Russia through Ukraine to Europe. It should also be noted that any drastic change in government policies affecting importing and exporting will significantly affect commodity prices. Any time an import duty is increased or trade is restrained, the price of the commodity is increased to account for the change. This is also true for times of war, inflation and seasonal variations.
When Libya, the producer of 2% of the world’s oil, experienced civil war it contributed to a rise in the price of crude from $84 a barrel to approximately $125 a barrel. If the present issues surrounding Russia’s Crimean adventure continue to unfold with aggressive stances on both sides of the conflict, Europe is likely to experience a rise (some experts predict a sharp rise) in its costs for natural gas purchases.
Inflation is coming
With a number of countries printing money in efforts to artificially stimulate their economies, keeping interest rates artificially low, and currently printing money, the time is certainly coming when inflation will rise bringing higher commodity prices in markets for commodities where the supply remains stable or decreases. The prices of precious metals, such as gold and silver, are impacted by the value of world currencies, especially the US dollar and the Euro. When the value of the dollar is perceived as decreasing, investors move at least a portion of their portfolios to precious metals as a safe haven for trading, resulting in the demand for and the price of those metals to rise.
Production and technology matters
The ability or inability to produce, deliver and store commodities is an important factor upon price. As technologies and tools are developed to improve the effectiveness of these factors, fluctuations in price will occur. Land use changes, crop diseases and labor patterns also play a significant role in the price of agricultural commodities. The spectacular growth of smart phone and other electronics production has substantially increased the demand for rare earth metals, commodities for which China has the largest supply by far. The proposed Tesla battery factory is also expected to impact commodity prices.
Commodities are capital-intensive goods that are impacted by a wide variety of factors. These factors directly influence the cost of producing the commodity, translate into higher prices for the products in which the commodities are used when supplies are limited or demand surges. The increasing world population, the upward economic movement of substantial segments of that increased population and the attendant increase in demand for consumer goods portend a significant increase in commodity prices as economies cycle back to sustained growth.
If you have any questions about commodities or would like to discuss other corporate, securities and investment banking matters, please contact me, Dan Breacher, or the Scarinci Hollenbeck attorney with whom you work.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Author: Jesse M. Dimitro
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Author: Jesse M. Dimitro
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Author: Scarinci Hollenbeck, LLC
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
Author: Dan Brecher
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
Author: Ronald S. Bienstock
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
Author: Patrick T. Conlon
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
What are the Factors that Affect Commodity Markets?
Author: Dan Brecher
Numerous factors impact the price range of commodities that are traded in the world market. Due to the massive volume of commodities traded daily, the commodities market is the world’s second largest market, second to the currency market. There are countless factors that impact the price fluctuations in the commodities market, primarily based upon supply and demand. A few other general factors are discussed below.
Weather conditions
When you consider that a large portion of commodities traded in the world market are agricultural goods, the weather plays a significant role in the price of such goods. Dramatic climatic changes directly impact the production and availability of food products, which drives the commodity price up or down accordingly.
For example, American states that produce corn can have their crops adversely affected by hurricanes. As a result, there will be shortages in the amount of corn produced, leading to price increases.
Extreme winter conditions increase the demand for heating oil, which is derived from crude. When winters are bitter or long-lasting, there is usually a significant increase in crude prices as the demand for heating oil increases.
International tensions
The economic and political relationships between the countries producing the commodities and those consuming them, directly affect the movement in prices. The obvious current example of the effect of the Ukraine crisis is the anticipated increase in the cost to Europe and to Russia), of cutting off the supply of natural gas to Europe that has flowed from Russia through Ukraine to Europe. It should also be noted that any drastic change in government policies affecting importing and exporting will significantly affect commodity prices. Any time an import duty is increased or trade is restrained, the price of the commodity is increased to account for the change. This is also true for times of war, inflation and seasonal variations.
When Libya, the producer of 2% of the world’s oil, experienced civil war it contributed to a rise in the price of crude from $84 a barrel to approximately $125 a barrel. If the present issues surrounding Russia’s Crimean adventure continue to unfold with aggressive stances on both sides of the conflict, Europe is likely to experience a rise (some experts predict a sharp rise) in its costs for natural gas purchases.
Inflation is coming
With a number of countries printing money in efforts to artificially stimulate their economies, keeping interest rates artificially low, and currently printing money, the time is certainly coming when inflation will rise bringing higher commodity prices in markets for commodities where the supply remains stable or decreases. The prices of precious metals, such as gold and silver, are impacted by the value of world currencies, especially the US dollar and the Euro. When the value of the dollar is perceived as decreasing, investors move at least a portion of their portfolios to precious metals as a safe haven for trading, resulting in the demand for and the price of those metals to rise.
Production and technology matters
The ability or inability to produce, deliver and store commodities is an important factor upon price. As technologies and tools are developed to improve the effectiveness of these factors, fluctuations in price will occur. Land use changes, crop diseases and labor patterns also play a significant role in the price of agricultural commodities. The spectacular growth of smart phone and other electronics production has substantially increased the demand for rare earth metals, commodities for which China has the largest supply by far. The proposed Tesla battery factory is also expected to impact commodity prices.
Commodities are capital-intensive goods that are impacted by a wide variety of factors. These factors directly influence the cost of producing the commodity, translate into higher prices for the products in which the commodities are used when supplies are limited or demand surges. The increasing world population, the upward economic movement of substantial segments of that increased population and the attendant increase in demand for consumer goods portend a significant increase in commodity prices as economies cycle back to sustained growth.
If you have any questions about commodities or would like to discuss other corporate, securities and investment banking matters, please contact me, Dan Breacher, or the Scarinci Hollenbeck attorney with whom you work.