Recent Trends in Commodities over the Last 10 Years

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Commodity prices have remained volatile post recession although economies around the world are slowly recovering. In 2020, the recovery was accompanied by increasing energy and commodity prices. Gold has remained highly priced although in recent weeks there has been a dip in prices. With the growing unrest in the Iran/ Israel regions, the future of oil prices remains uncertain. Once thing is quite clear, binary traders who have invested in any of these commodities need to stay in tune with trends right now to make accurate investment decisions.

The Emerging Pattern

Over the past 10 years, there appears to be a pattern that is emerging from the chaotic price movements. Starting from the 1980s and up to the first few years of the 2000s, the energy and commodity prices remained even. There have been price spikes ever since that have been analyzed by market experts. It appears that a spike may occur in this year and last well into the 2020. If this is the case, commodity binary traders should move in to take their positions to take advantage of a potential increase in prices in this sector.

Impact of the Supply Demand Equation

A consistent price increase in commodities is a factor that most binary traders do take into account. One of the reasons for this is that new commodity sources are not that easy to find. Extraction and processing are not exactly cheap either. Considerable outlay and effort goes into making the commodity ready for the market. This is one important factor that keeps supply subdued.

Today, more people are aspiring to a higher standard of living than ever before and this has pushed up demand for both commodities and energy. Given this increasing demand and subdued supply situation, it is not surprising at all that prices are likely to be moving up in coming years. Add to this mix the volatile state of affairs in most economies and the predilection of many investors to move into commodities is quite easily explained.

Whether the world economies achieve stability, whether new supply sources are discovered, whether investors regain confidence in currency/ currency based assets and many more factors will all impact the prices of commodities and energy going forward. These are all factors that binary traders should bear in mind.

Food Prices

Notice: This is only a preliminary collection of relevant material

The data and research currently presented here is a preliminary collection or relevant material. We will further develop our work on this topic in the future (to cover it in the same detail as for example our entry on World Population Growth).

If you have expertise in this area and would like to contribute, apply here to join us as a researcher.

Food prices refer to the average price of particular food commodities globally and across countries.

The price of goods not only provide an important indicator of the balance between agricultural production and market demand, but also have strong impacts on food affordability and income. Food prices not only influence consumer affordability, but also influence the income of farmers and producers. In low-to-middle income countries in particular, a large share of the population is employed in agriculture. Producers typically benefit from higher food prices; consumers from lower prices. Food markets can therefore have a strong impact on food affordability, hunger and undernourishment and dietary quality.

This entry presents the empirical overview on global and country-level food prices and expenditure, spanning the long-term to very recent changes.

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All our charts on Food Prices

Food Prices over the very long run

Wheat prices since the 13th century

The visualisation shows the price of wheat in England over more than 7 centuries.

Click to open interactive version

Long-term food commodity prices since 1850

This visualisation shows long-term commodity price indexes across various food items since 1850, relative to real prices in the year 1900 (i.e. prices in 1900 = 100).

Click to open interactive version

Food prices compared to wages

Long-term comparison of US manufacturing wages and food prices

These visualisations show the relative difference in average USA manufacturing wages relative to the price of food commodities based on Bureau of Labor Statistics data. 1

Click to open interactive version

Click to open interactive version

Food prices in the recent past

The FAO Food Price Index (FPI) is a measure of the international prices of food (e.g., between suppliers or nations), while the food consumer price index (CPI) is a measure of the price of food to the actual consumer. The graphs shown indicate that “the FPI translate to higher consumer prices only to a very limited degree and with a time lag of a few months.” The lag is often due to the time needed to harvest, transport and process food to the consumer. The limited relationship in the magnitude of the two indices “is explained by a combination of factors that determine vertical price transmission in every food economy, including mark-ups for transportation, processing and marketing, and by any subsidies at the consumer level.” 2

Global food consumer price index (CPI) & FAO food price index (right-hand scale), 2001-2020 – FAO (2020) 3

Food Price Volatility

Consequences of High Food Price Volatility

The volatility of food prices matters especially for the wellbeing of poorer people since the price increases can translate into shortages of food supply at low income levels. These visualisations show the declining volatility of the real value of wages (adjusted for price changes) over the very long-run in various locations.

Especially important for this decline in real wage volatility was increasing integration into larger markets, such that poor harvests in one area could be compensated by importing food from regions less affected by bad harvests.

Volatility of real wages of laborers in Stockholm/Sweden, 1468–2004, measured as the percentage year-on-year change in real wages – Söderberg (2020) 4
Real wages of unskilled laborers in Stockholm, 1365-1864, and industrial workers in Sweden, 1865–2004 (index 1950=100) – Söderberg (2020) 5
Volatility of the deflator consumer price index (CPI), 1291-2004, measured as the percentage year-on-year change in the CPI – Söderberg (2020) 6
Volatility in real wages and in the deflator consumer price index (CPI), 1291–2004, measured as the standard deviation of the percentage year-on-year change – Söderberg (2020) 7
Period Volatility of real wages Volatility of deflator CPI
1291 – 1399 38.1
1400 – 99 17.8
1500 – 99 20 19.2
1600 – 99 16.4 14.7
1700 – 99 13.3 12.6
1800 – 99 9.5 6.9
1900 – 2004 4.7 7

Long Run Evidence of the Decrease of Volatility

Year-to-year variation in the price of wheat in pisa, 1351-1799 – Ó Gráda 8
Coefficients of variation for wheat and rye combined – market integration in the North and Baltic Seas, 1500-1800 – Jacks (2000) 9

Click to open interactive version

Consumer expenditure on food

Per capita food expenditure

In the map shown we see the average per capita food expenditure across select countries, as published by the United States Department for Agriculture (USDA). Food expenditures are measured in US$.

Overall we see large differences in food expenditure across the world. The average Swiss expenditure was $3,631 in 2020 – more than 10 times higher than the average Venezuelan who spent only $258.

Click to open interactive version

Share of expenditure on food

Food expenditure as a share of total consumer expenditure

In this chart we see the share of total consumer expenditure spent on food across select countries in 2020. For some countries, food constitutes a large share of expenditure – Nigerians spent 59 percent of total expenditure on food. For others, food constitutes a small share – in the United States, this share was only 6 percent. This relationship is explained by a concept called ‘Engel’s Law’ which we explore here.

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Food consumed away from home

Click to open interactive version

Click to open interactive version

Click to open interactive version

Determinants of Food Prices

Yields

Correlation coefficients between % yield and % price inverted, 1211-1491 – Campbell 10

Food vs. fuel: food and energy prices

In this chart we see the long-term global commodity price index of cereal crops (wheat and corn) alongside the oil price index since 1850. Although not perfectly matched, we see some relationship between the two: increases in oil (energy) prices tend to result in increases in cereal prices.

This relationship may be attributed to two key reasons. Firstly, most modern agricultural and food systems require energy inputs (either in the form of on-farm machinery, transportation, distribution or storage energy). Increases in energy prices can inevitably have an impact of producer and distribution costs, resulting in higher food prices. Studies have suggest that the passthrough of price changes in energy and transport inputs to agricultural commodities to result in a price increase of approximately 15-20 percent. 11

The second potential reasoning for this relationship relates to the allocation of crops to biofuels – an important consideration in terms of food security. The rationale follows that a rise in oil prices drive demand in the production of biofuels; this increased diversion of food crops to biofuel production reduces food supplies, resulting in an increase in price. The role of biofuel production on food prices and food security remains strongly contested. Following the rise in food prices over the period 2005-2008, several authors – including the World Bank – attributed the largest driver to be increased biofuel production in the United States and European Union. 12

The authors state that the rise in food prices ” the most important factor [in higher food prices] was the large increase in biofuels production in the U.S. and the EU. Without these increases, global wheat and maize stocks would not have declined appreciably, oilseed prices would not have tripled, and price increases due to other factors, such as droughts, would have been more moderate.”

Other studies which assess the relative contributions of different drivers of food prices suggest the price relationship between biofuel and food commodities is more complex. Zilberman et al. (2020) conclude that the introduction of biofuels can affect food prices but this impact various significantly by crop type and location; this effect is less marked when biofuel production is not competing for natural resources with food crops. 13

For example, the use of sugarcane ethanol in Brazil or use of non-food crop biofuels (such as miscanthus grasses) are likely to have a smaller impact on food prices relative to cereals such as wheat or corn. The authors also note that the impact of biofuels on food prices can be significant, but less so than other drivers such as economic growth, or the introduction of genetically-modified crops (which have the opposite effect on prices).

Westend61 / Getty Images

Prices of Scrap Metals are always very important to the scrap recycling industry. When scrap prices are in a downward trend for a long period, recycling rates decrease with the trend and scrap metal firms struggle to make a profit. The current scenario is exactly the same as scrap metal firms are getting hammered across the globe due to all-time low scrap prices.

Scrap Prices Are at All-Time Low

2020 was a disaster for scrap traders and recyclers as throughout a year of continued downward price movement across the metals.

According to BBC, prices of scrap steel are around half of what they were at the start of 2020. In August 2020, the prices of car scrap metals in Wales were between £50- £60 where prices of the same scrap metals were around £100-£110, £120-£125 and £140 in 2020, 2020 and 2020 respectively. This demonstrates that while 2020 was harsh, the downward trend has been in progress now for a number of years.

Prices of some scrap have gone down even more than 70 percent over the last 12 months. Andrew Jacobson, one of the owners of All Metal Recycling in Franklin Park, buys steel scrap for $50 per ton which is more than 70 percent less than the price he used to pay a year ago. Jacobson told CRAIN’s Chicago Business, “I think everybody is hoping for a gradual price increase.”

The reality has been harsher. “There’s going to be a continued thinning of the herd,” cautioned Brad Serlin, president of Cicero-based United Scrap Metal, in the same article.

According to Bloomberg, over the past year on the London Metal Exchange, price of scrap zinc has fallen to 1,568 per metric ton (29 percent down from a year ago). Prices of scrap copper and scrap aluminum are 26 percent and 20 percent down and selling now at $4,609.50/metric ton and $1,473/metric ton respectively.

“I’ve seen high markets. I’ve seen low markets. For some reason, this one feels the worst of them all,” Jeffry Gertler, CEO of Scrap Metal Services, told CRANE3.

According to statistics gathered and summarized by the Journal of Commerce, exports of scrap metals from the U.S. dropped 4.7 percent in the first half of 2020 compared to the first half of 2020.

Reasons Behind Continued Falling of Scrap Prices

Reasons for the precipitous drop are multiple. Great Falls, Montana-based Pacific Stee, and Recycling is headquartered in Great Falls and has branches in nine western states. There are a lot of dynamics involved,” Patrick Kons, vice president of scrap operations for the company told the Great Falls Tribune. “These are global commodities with cyclical prices.”

Joe Pickard, chief economist at the Institute of Scrap Recycling Industries in Washington, D.C, told CRAIN, “The stomach-wrenching swoon in metal prices is driven by the slowing Chinese economy, a strong dollar that makes exports less competitive and excess supply in commodities such as iron ore, which steelmakers can use to make steel instead of reusing scrap.

Impacts of Falling Scrap Prices

Many firms and people who are in the scrap trading and recycling industry have already left their business, many have cut their employees and some are stockpiling scraps hoping for a market turnaround.

Pacific Steel and Recycling’s Great Falls, Montana scrap yard is down to just seven employees which is half the number of employees the scrap yard had about a year ago. The company has also closed down a couple of its recycling plants in Lewiston and Williston.

Chance of Quick Turnaround is Low

Kons believes that metal prices have bottomed out and will begin to slowly improve over the months ahead:

But it took 14 months for prices to fall so much and it might take that much time or longer for them to come back. But each supplier has a price point where its yards fill up and they need to sell. We want to stress that our recycling scrap yard is open and ready to serve them.

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