RSSSome Other Keys to Commodity Pricing (2)
 | Seed Newsvine |
In a recent article for Market Insights on commodity prices, my approach was mainly to look at demand factors. Yesterday, I started a supplementary piece to consider more issues, particularly on the supply side, starting with energy prices and some aspects of forestry. The following picks up where I left off yesterday.
In pulp markets, China has become a major source of new demand for product. In the meantime, higher energy and freight costs have been plaguing North American producers. Also, a problem for producers has been a dwindling supply of woodchips as a result of the U.S. residential construction slump. Bankruptcies (e.g., Pope & Talbot) and plant closings have helped to keep production volumes down and prices firmer than might otherwise be expected.
In aluminum pricing, a crucial factor to consider is power markets, since electricity is such a major part of the production process. Power outages were severe in January and February in China and South Africa. Rising electricity costs, as an input, are also exerting an influence on aluminum prices in general. Furthermore, there is growing concern about the outlook for aluminum’s major markets, airplanes and automobiles.
In the worldwide uranium market, the price has come off its exceptional high due to new supplies coming on stream in Kazakhstan and South Africa. All the same, the outlook for demand remains quite buoyant as nuclear power is being given a boost by the governments of such countries as China, Russia, South Africa, India and the United States. Several of the provinces in Canada can be included in that list as well.
Gold and silver prices are often investment-driven. The traditional ratio of gold’s price to silver is approximately 50 to 1. Gold was recently priced at over $1,000 US per troy ounce, which far exceeded its prior record of $850 US established in 1980. However, that earlier figure was $2,200 in inflation-adjusted dollars. Silver is often viewed as a less-expensive way than gold to participate in the precious metals market.
There is explosive demand world-wide for agricultural products to be used as food, animal feed and biofuel. Run-ups in prices across a spectrum of crops are causing a battle for planting acreage. Soybean and canola prices move in tandem, since they are both oilseeds. Wheat demand has proven to be relatively inelastic, staying high despite the large increase in price.
Finally, in livestock markets, both hogs and cattle are in oversupply. An earlier blog entry entitled “Politics Doesn’t Come more Pork Barrel Than This” set out the government’s action plan to save the hog industry in Canada through a massive cull. Despite rising demand from China, output prices remain below input costs, comprised mainly of feed and energy.
New U.S. country-of-origin labeling (COOL) rules are also a concern for both hog and cattle producers in Canada. There is the possibility that U.S. retailers may decide not to carry Canadian product because of the extra cost involved in identification. September 30th of this year is the implementation date.
In conclusion, I just have a reference source to recommend. TD Economics of the TD Bank Financial Group, with quarterly and weekly reports, is an excellent source of information on world commodity markets.
Alex Carrick
Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.
