Price Change Essay

Submitted By bawa123
Words: 2997
Pages: 12

2- Since June of last year corn prices have risen by 60%. Assess the impact of this increase on businesses in the developing world.

A commodity is a raw material or primary agricultural product that can be bought and sold without qualitative differentiation across a market, such as gold or wheat. A Commodity also maintains a close universal price regardless of who produces it. The main commodities such as aluminium, cocoa, coffee, copper, corn, copper, cotton crude oil, lead, heating oil, gold, lean hogs, live cattle, natural gas, nickel, platinum, palm oil, soybeans oil, soybean, silver, sugar, tin, unleaded gas, wheat and zinc. Economic recovery will make food, metals and other raw materials more expensive in 2013, the head of the World Trade Organization said on Monday. Addressing a United Nations conference, WTO Director-General Pascal Lamy said the prices of crude oil, copper, gold, corn and soybeans would be on rise most this year, with less pronounced increases in natural gas, zinc and cattle. Besides that, Frenchman said "2013 will see the prices of most commodities rise, as the rise in global GDP bolsters demand, led by developing economies”, estimating worldwide economic output would increase 4 percent in 2013. Over 70 percent of the growth will come from commodity-intensive developing markets. China, India and Latin America, in particular, will be acting as a 'pull' for global commodities. That’s means rising commodity prices could be a boon for countries where raw materials are grown, mined, produced and refined.

The commodity price change related with the supply and demand on the price. Price is set by the interaction of supply and demand. Market price is dependent upon both of these fundamental market forces. The successful commodity trading transaction occurs when buyers demand and sellers supply agree on price. When this exchange occurs, the agreed upon price is called the equilibrium price, or market clearing price. This can be seen below as supply and demand. Market prices are not always fairly priced to all in the marketplace. Supply and demand does not always guarantee buyers and sellers; this depends on their competitive positions within the market. Market prices play a central role in competitive landscape of the commodity markets; very low prices result in excess profits for the buyer, attracting demand. Conversely, excessively high prices attract additional producer competition, which creates supply. Therefore, varying price levels exist where buyers and sellers are satisfied, creating market price. When supply and demand changed, the prices for commodity will change. e.g., good weather normally increases the supply of grains and oilseeds, with more products being made available over a range of prices. With ought increase in the quantity of commodity demanded, there will be movement along the demand curve in order to remove excess supplies. Consumers will buy more but only at a lower price. Shifts in demand due to changing consumer preferences will influence market price. Recently, there has been a shift in demand on the part of overseas Canadian wheat futures buyers toward the Canada Prairie Spring varieties, away from the Hard Red Spring varieties. A decline in the preference for Hard Red Spring wheat shifts the demand curve inward. With ought reductions in supply, the effects on price results to a lower price where supply and demand is again balanced. For prices to increase again, producers need to reduce the amount of hard red spring wheat in the market place or find new sources of demand. Supply and demand changes can short or long term in nature. Weather tends to influence commodity prices generally in the short term, where as consumer preferences can have either a short or long term effect. Luxury goods may enjoy a short-term shift in demand due to changing styles, while necessities have long-term demand. A major factor influencing commodity markets is technology. An effect of technology can…