Many times people who trade commodities will overdo media hype about negative weather that may destroy crops or cause a low yield that year. Meaning there will be fewer crops available for sale and therefore supply and demand dictates prices to be higher. Therefore people buying these commodities that have an important need are willing to pay more so they are not caught short without. Lots of people get in the way and speculate, believing that there might be a shortage in therefore next week the price will be more, or it may even be more in ten minutes to an hour. So they buy the contract and sell it, when someone else believes it will go up even more in the near future. Finally the person who's actually going to use the products in production (in the case of Agricultural products) ends up buying what they need. Some of the speculators who bet on margin make an incredible about money in a very short time. And some loose so much money to they cry, jump out of buildings or may never recover. How does this affect the consumer? Some would say not much. Others would say, it artificially elevates the price to a cost un relative to any sense of reality. And that the end price of the makers of Gray Pupon in France is higher than if they bought the mustard seed from the corporate farmer himself. Nevertheless that is the way things work. McDonald's buys its potatoes from corporate farmers in Idaho not the commodities market; therefore it limits its exposure to price gouging that might have occurred by using the commodity exchange to get those potatoes. Starbucks is doing the same thing, but instead of having partnerships and coffee beans, they are all of in-house. Its Starbucks owns the partnerships they grew the coffee then they might have a conflict of interest for their stockholders. Because they would be dictating the price of the coffee at the partnerships been sold to Starbucks. If they paid a little more than normal for those coffee beans, so the coffee plantation can expand by better production facilities and upgrade then Starbucks funneled money to those partnerships, that should have either paid in dividends, shown as profits or retained earnings. By doing that their stock price would go up and shareholders would be better served short-term. There is a lot more involved before that food or drink gets to your table. Commodities are very much part of the behind the scenes of our civilization. |
