Commodities Markets

OPEC-style cartel for the rice industry?

Two stories on the global rice industry attracted my attention last week. The perception that the surge in rice prices is good news across the board for rice producers is questioned by this article in the Financial Times which explains that the dramatic increase in prices is now benefitting smaller producers who have limited storage facilities, face rising costs and have little surplus production available to take advantage of the global price spike. There has been a noticeable increase in rice planting in countries such as Thailand, but by the time the fresh output comes to market, the price may well have fallen a long way from recent highs.

The rest of the article is here

The BBC reports today that Thailand wants to form an Opec-style rice cartel to give it more control over international rice prices. The article can be found here
Revision questions for students:

(a) Explain what is meant by a cartel and what its aims might be
(b) Briefly explain how a cartel might seek to stabilise the price of rice on world markets
(c) Outline the difficulties that a newly formed cartel might have in meeting its objectives

Revision: Stocks and Prices

Many AS microeconomics questions revolve around the volatility of soft commodities such as coffee, crude oil, rubber and tea and harder commodities such as iron ore, copper, tin and platinum. It is important to be aware of the important link between stocks and changes in market prices, especially in an age when commodities have become a new asset class with much more speculative activity than before.  Stocks are also important in many other sectors of the economy – for example the property market and the market for carbon permits.

Revision note
Revision_Stocks_Prices.pdf

Powerpoint charts
Stocks_and_Prices.ppt

Chart of the Day: China’s imports of primary goods

We often read about the size of the ‘China effect’ on the demand for and prices of primary commodities traded around the world. This over-simplification ignores the impact that other emerging market economies are having on the consumption of primary products – indeed a much greater proportion of global economic growth is being provided by the resource-intensive emerging economies. Added together, the emerging economies account for 23% of global GDP whereas the US accounts for around 29%.

Revision: OPEC

This revision note focuses on the role of OPEC in the global oil market.

Reuters special reports on Agflation

Reuters is producing a special series of reports on the surge in global food prices - the phenomenon known as aglfation. 

Revision: Commodity Prices and Economic Effects

In recent years we have seen a sharp rise in the prices of many internationally traded commodities such as oil, gas, iron ore, palm oil, rubber, copper and many foodstuffs. This revision note looks at some of the demand and supply-side explanations for this and also covers some macroeconomic consequences for various countries. This five page revision note available in pdf format (below) will also highlight some micro and macro concepts from the AS and A2 specification and offers ideas for scoring more highly using evaluation.

Revision_Commodity_Prices.pdf

Gold glitters over $1000

The price of gold has risen above $1000 for the first time and the falling US dollar is the main cause. As the greenback slides in the foreign exchange markets, so gold becomes an even more attractive target for speculators who are keen to hedge against the growing global economic uncertainty and also take advantage of stronger currencies to buy gold - which of course is priced in dollars. Nervous investors are looking for assets that will give a more certain return and, with equities markets struggling to recover from the fall-out from the credit crunch, foreign investors now regard precious metals as hard assets that can protect the real value of their portfolios. How much longer can the gold bull (or should that be bullion) run continue? The spread-betting markets are chocker with traders taking bets that gold will rise to $1100 or higher still. The lesson seems to be this - watch what the US dollar is doing first and that will give you the next move in the price of gold. So when will the US Fed stop cutting interest rates?

Malthus’ Revenge?

Food security is a growing issue to add to climate change, globalisation and meltdown in the financial markets as a cause for concern. Professor John Beddington, chief science adviser to the government, has warned that as the world’s population increases and grows wealthier, demand for food could outstrip supply ... are we returning to Malthusian misery?

Higher prices brewing for coffee

Record global demand and falling stocks have driven up the price of raw coffee beans around the world. And now these higher prices are filtering their way through the supply chain with latte lovers feeling the brunt when they queue up for their daily caffeine fix. There is an excellent article about this in today’s Financial Times which explains how changes in raw bean prices work through the wholesale market through to retail level. The key is the extent to which suppliers are able to pass on higher costs to their consumers.