Factors Affecting Commodity Prices

Submitted By remen54
Words: 2707
Pages: 11

Contents 1. Introduction 2.1 Aim of the report 2.2 Background 2. The rise in commodity prices 3.3 Definition of commodity 3.4 The factors and influence of commodities price rose 3.5 How to cope with the condition 3. Conclusion 4.6 Prediction of commodity prices 4.7 Advice on invest commodities 4. References

1. Introduction 1.1 Aim of the report
This report is mainly concerned on a financial research, which is about a description and explanation of commodity prices. In other words, it is a report that will research the factors which affect global commodity prices. In addition, some appropriate advices and predictions will be made for the UK based corporation in order to help its investment portfolio become more safe and profitable. 1.2 Background
In the latest ten years the global commodity prices have been through rise and fall for many times, but there were just three mainly rose, they are 2002-2004, 2006-2008 and 2010 to now (beinet, 2011). All of them have a different reason and revealed the real economic trend of that time.
In 2011, the global monetary policies were tended to be a same due to the bad effect caused by sub-prime crisis in 2008. Those policies have a common name, which is called Quantitative Easing policy. Quantitative Easing is a policy which utilized a method of buying government securities or other kinds of securities to increase money supply and targeted to stimulate the liquidity and increased lending from bank (Investopedia). There still existed a lot of other factors which will result in the increase of global commodity prices. Under the influences caused by new or old factors, and it leaded to the global commodity prices increased and the fluctuation aggravated heavily. According to Robert Zoellick(cited in Elliott Larry,2011), around 30% risen happened in global food price since last year and it reached a historical high since 2008. What is more, the global copper price had increased about one third in the last 12 months (Sina, 2011). Which had cost eight times more money in February 2011 than in 2000(Adams, 2011). Besides that, many kinds of other commodities prices soared. This serious condition had affected UK’s domestic commodity prices and would brought about bad effects to our customer. 2. The rise in commodity prices
2.1 Definition of commodity
Commodity is union name for basic goods, it includes not only food, mineral, fuel, but any other goods which could be used in commerce and interchangeable with another kind of commodity of the same type (Investopedia). The function of commodity is often used as input to produce other goods or services. For that reason the producer needs to keep the quality almost the same for most of them may differ slightly in a way. Besides that, another definition of commodity is any goods exchanged during commerce (Investopedia).
2.2 The factors and influence of commodities price rose
Food prices
Line graph 1-1: Commodity Food Price Index

Source: International Monetary Fund, 2010/2011.
In this year, global food price had kept rising in the first half year. This rose was another signal of the change in economy trends which was needed to be paid more attentions.
Since 2005 global food price had risen for 21 percent, but for grain and cooking oil the prices rose for 30 more percent. This price could be the highest price since 1990 (NBD , 2011). From all kinds of food, dairy products were the winner of price rose. According to Mr. Calpe, who is the senior economist of FAO, the low production, high export and increased demand of import were the main reasons which had pushed the price soared. For example, the terrible flood in Australia and Canada had destroyed the wheat, sugar and planting of their country. In addition, Russia had been through drought and fires which destroyed some crops and made losses. But this is not the whole reason, more importantly, the