1. NS3040 Fall Quarter 2018 Commodity Prices

2. Commodity Prices I “Shocks and Ores” Economist March 14, 2014
Short term gyrations in commodity prices may do more damage than long-run trends
Fear of long run rise in commodity prices – Thomas Malthus prediction of mass famines due to scarcity of land
Other view, rising prices stimulate more production and increased supplies, so that long run prices are stable or falling

3. Commodity Prices II
Long run rates have been most pronounced for commodities in the ground – minerals, natural gas
In contrast prices for resources that can be grown have trended downward
Inflation adjusted prices of rice, corn and wheat are lower now then they were in 1950
Global population is 2.8 times above its 1980 level
World grain production is 3.6 times higher

4. Commodity Prices III

5. Commodity Prices IV
Long run trends easy to miss because medium-term super-cycles can push prices off trend for a generation
Typical super-cycle – at least 20% away from trend lasts no more than 40 years from begging to end
Such episodes cluster in periods of rapid industrialization and urbanization
Economies in industrial boom like 1890s America or China in the 2000s need basic commodities
Supply slower to respond
Prices surge until supply catches up

6. Commodity Prices V
Concludes most damaging commodity price movements not long run trends but short-run booms and busts
Come and go more rapidly than super-cycles but can generate much larger movements in price
Often produce spikes of at least % away from trend
Some blame rapidly rising oil prices in for the start of the global recession
Threats of Malthusian collapse attract attention but short run gyrations end up the bigger headache.