Why do the prices for commodities fluctuate greatly?

Answer 1

I believe that the main reason is that there is a commodity market for the the ones that tend to fluctuate the most. It is the fact that there is a commodity market that makes them fluctuate. The market mechanism allows anyone to buy and sell commodities in an auction environment. The auction mechanism is governed by greed and fear. When greed is the driving force, prices tend to increase rapidly. When fear is the driving force, prices tend to decrease rapidly. In certain commodities such as agriculture prices can vary rapidly based on weather conditions. A dry spell in the mid west will drive up the price of corn and soy beans. A frost in Florida will send the price of Orange Juice through the roof. A bumper crop prediction will drive prices down. Financial markets can vary wildly based on world events such as Spain being in financial difficulty or a bank failing or even an increase in applications for unemployment.

Per Cassie Wilkerson:

The above is partial truth but elaborate a more realistic understanding about why commodities fluctuate is to recognize they are derived from resources that may be limited in nature perishable and non-perishable. Despite this each has limitations. The cost are semi- regulated for beneficial reason and manipulated due to adverse negative actions.

• Perishable commodities - agricultural items that may have an unstable life and not recycled (consumed once but they can be regenerated via seed production or live stock breading so renewable)

• Non-perishable commodities - ores, minerals and oil items that have stable life and can be recycled. (may be recycled to a limit but they can't regenerate or reproduce)

These commodities are restricted for either positive or negative consequences that cause this price fluctuation. Social, Economical, Environmental and Political.

Positive Examples:

• Social regulatory sanctions may include restricting contaminated foods that may harm a society from harm.

• Economical regulatory sanctions may protect the local economy from failure due to unfair pricing that may decline the job market.

• Environmental regulatory sanctions may prevent harm to the environment such as the bi-product of mining may release toxins into the air or viable water systems.

• Political regulatory sanctions maybe restrict the growth of one specific group to encourage equality for minority produced goods and enable fair trade agreements either internationally, nationally and regional or etc.

There are negative consequences too noted:

Social Disobedience:

War- ensuing human peril

Unfair labor practices

Unfair trade agreements- politically, socially or monetary driven agenda

Panic or false- driven demand

Boycott -for social, political or economical reasons

Natural Disturbance:

Climate changes: damage by weather

Geographical: earthquakes, volcanoes

Monetary Restrictions:

Cost to extract resources higher then price obtained

Labor or limited production capital

Limited demand to produce a living wage

Access restrictions:

Resources are cut off conditions of locations such as hazards to produce

Non-existent infrastructure to permit production or acquirement

Insufficient trained labor

Lack of technology or knowledge to access

Worst Case scenario:

Managing limited supply resource that maybe only viable economic resource to an entire economy and life is non-regenerating or renewable.

Depletion of resources- there none left to provide the commodity market collapses.

Historical and On-going Events:

One must assume that in the course of human history also plays a role even past events may limit current valuation in commodity trades - such as the Iraq War 2003-2010, Gulf War 1990 and the Iranian War with Russia where the oil wells were set on fire that took months even just past a year to be put out - it was estimated some 100-500 years of oil reserves were depleted or more other such resources were depleted by various incidents such as a mining accident in Centralia, PA a fire that started in 1962 is still burning today it' estimated will burn for some 250yrs that closed off an entire coal mining town. Some events stem far longer into the course of history may imply social injustice and extreme environmental damage that may increase existing costs on commodities or extreme desperation allowing underselling of commodities for necessity of human survival and resulting in social ill-will or future strife and civil unrest again to fluctuate commodity futures.