BLOOMINGTON, Ill.--(EON: Enhanced Online News)--A new report from GROWMARK Research demonstrates how conventional commodity analysis, because it relies on a flawed economic framework, fails to understand and forecast commodity price movements.
“The Failure of Commodity Market Economics: How Governments, Academia and a Global Industry Miss the Major Cause of Price Movements” shows that the current commodity pricing model attributes wildly gyrating prices to only minimal changes in supply and demand. “It is both logically and mathematically impossible for a slight change in the supply and demand balance to move prices by 50% or 200%,” according to Kel Kelly, GROWMARK’s head of Economic and Market Research, and co-author of the report. He shows that supply and demand always perfectly explain price movements when demand is correctly defined as the amount of money spent instead of as the number of units purchased.
The study demonstrates that Wall St. firms have been the largest spenders of money in the commodity markets in recent years. Their redirection of money from the $70 trillion stock and bond markets to the very small $1 trillion commodity market created a hyperinflation within the commodity market. This inflation—and subsequent deflation—has been the driving force of commodity prices over the last decade.
The report can be accessed at: http://www.growmark.com/sites/Files/Documents/TheFailureofCommodityEconomics.pdf
GROWMARK is an agricultural cooperative with annual sales of $7 billion (FY 2016 data) providing agronomy, energy, facility planning, and logistics products and services, as well as grain marketing and risk management services in more than 40 states and Ontario, Canada. GROWMARK owns the FS trademark, which is used by affiliated member cooperatives. More information is available at www.growmark.com.