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H. Kent Baker, Greg Filbeck, and Jeffrey H. Harris

Print publication date: 2018

Print ISBN-13: 9780190656010

Published to Oxford Scholarship Online: March 2018

DOI: 10.1093/oso/9780190656010.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 16 October 2021

The Economics of Commodities and Commodity Markets

The Economics of Commodities and Commodity Markets

Chapter:
(p.19) 2 The Economics of Commodities and Commodity Markets
Source:
Commodities
Author(s):

Florian Ielpo

Publisher:
Oxford University Press
DOI:10.1093/oso/9780190656010.003.0002

This chapter covers the economic fundamentals of commodity markets (i.e., what shapes the evolution of the price of raw materials) in three steps. First, it covers the theories explaining why the futures curve can be upward or downward sloping, an essential element for commodity producing companies. The evolution of inventories and hedging pressures are the two dominant sources of explanation. Second, the chapter reviews the fundamentals of commodity spot prices: technologies, supply, demand, and speculation. Production costs draw the long-term evolution of prices, but demand and supply shocks can trigger substantial variations in commodity prices. Third, the chapter presents how commodity prices interact with the business cycle. Commodities are influenced by the world activity but can also have a material impact on it.

Keywords:   commodities, commodity market, futures curve, spot price, supply and demand shock

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