Showing papers on "Commodity published in 2012"

Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices

Abstract: World market prices for major food commodities such as grains and vegetable oils have risen sharply to historic highs of more than 60 percent above levels just 2 years ago. Many factors have contributed to the runup in food commodity prices. Some factors refl ect trends of slower growth in production and more rapid growth in demand that have contributed to a tightening of world balances of grains and oilseeds over the last decade. Recent factors that have further tightened world markets include increased global demand for biofuels feedstocks and adverse weather conditions in 2006 and 2007 in some major grain- and oilseed-producing areas. Other factors that have added to global food commodity price infl ation include the declining value of the U.S. dollar, rising energy prices, increasing agricultural costs of production, growing foreign exchange holdings by major food-importing countries, and policies adopted recently by some exporting and importing countries to mitigate their own food price infl ation. This report discusses these factors and illustrates how they have contributed to food commodity price increases.

Bitcoin: An Innovative Alternative Digital Currency

Abstract: Bitcoin is a digital, decentralized, partially anonymous currency, not backed by any government or other legal entity, and not redeemable for gold or other commodity. It relies on peer-to-peer networking and cryptography to maintain its integrity. Compared to most currencies or online payment services, such as PayPal, bitcoins are highly liquid, have low transaction costs, and can be used to make micropayments. This new currency could also hold the key to allowing organizations such as Wikileaks, hated by governments, to receive donations and conduct business anonymously. Although the Bitcoin economy is flourishing, Bitcoin users are anxious about Bitcoin’s legal status. This paper examines a few relevant legal issues, such as the recent conviction of the Liberty Dollar creator, the Stamp Payments Act, and the federal securities acts.

Developments in international solid biofuel trade—An analysis of volumes, policies, and market factors

Abstract: This paper presents and analyses international solid biofuel trade and concludes upon interactions with bioenergy policies and market factors. It shows that trade has grown from about 56 to 300 PJ between 2000 and 2010. Wood pellets grew strongest, i.e. from 8.5 to 120 PJ. Other relevant streams by 2010 included wood waste (77 PJ), fuelwood (76 PJ), wood chips (17 PJ), residues (9 PJ), and roundwood (2.4 PJ). Intra-EU trade covered two thirds of global trade by 2010. Underlying markets are highly heterogeneous; generally though trade evolved whenever supply side market factors coincided with existing/emerging demand patterns. Market factors and policies both defined trade volumes; though policy changes did not have as prominent effects on trade developments as in the liquid biofuel sector. Economic viability is the key limiting factor. Main exporting countries have low feedstock costs and already existing wood processing industries. Trade-relevant aspects are the commodity's monetary value; determined by its homogeneity, heating value, and bulk density. Consumer markets are diverse: in residential heating, demand/trade patterns have been influenced by local biofuel availability and short-term price signals, i.e. mainly price competitiveness and investment support for boilers/stoves. Commodities are mainly sourced regionally, but price differences have triggered a growing trade. The industrial segment is greatly influenced by policy frameworks but more mature (e.g. established routes). Trade is strictly linked to margins (defined mainly by policies) and combustion technologies. Uncertainties in the analysis are due to data gaps across and within databases regarding import/export declarations. To estimate bioenergy related trade, anecdotal data was indispensable. We believe datasets should be streamlined across international institutions to eventually enable reporting of global trade beyond digit-6-level. Research is needed to provide further insights into informal markets. Interrelations between trade factors are particularly relevant when mapping future trade streams under different policy/trade regime scenarios.

Markets of English: Linguistic Capital and Language Policy in a Globalizing World

Abstract: 1. Introduction 2. The Three Circles Model: A Market-Theoretic Perspective 3. Performativity and Appropriation: English in Autonomous and Unified Markets 4. Is There a Market for English as a Lingua Franca? 5. English as Commodity: The Ideological Bases of Supply and Demand 6. English as Capital: The Logic of Conversion 7. Managing the Linguistic Market: Possible Policy Responses 8. Conclusion

Commodity Trade and the Carry Trade: a Tale of Two Countries

Abstract: Persistent differences in interest rates across countries account for much of the profitability of currency carry trade strategies. We relate these differences to the differences of economic fundamentals across countries. We show that countries that primarily export basic commodities exhibit systematically high (real) interest rates while countries that specialize in exporting finished consumption goods typically have lower rates. The resulting interest rate differentials do not fully translate into the depreciation of the commodity currencies, on average. Instead, they translate into expected returns that capture the bulk of the unconditional risk premia that can be obtained in the currency markets. We provide a general equilibrium model of commodity trade and currency pricing that can rationalize these facts by relying on adjustment costs in the shipping sector.

The Effects of Farm Commodity and Retail Food Policies on Obesity and Economic Welfare in the United States

Abstract: Many commentators claim that farm subsidies have contributed significantly to the “obesity epidemic” by making fattening foods relatively cheap and abundant and, symmetrically, that taxing “unhealthy” commodities or subsidizing “healthy” commodities would contribute to reducing obesity rates. In this article we use an equilibrium displacement model to estimate and compare the economic welfare effects from a range of hypothetical farm commodity and retail food policies as alternative mechanisms for encouraging consumption of healthy food or discouraging consumption of unhealthy food, or both. We find that, compared with retail taxes on fat, sugar, or all food, or subsidies on fruits and vegetables at the farm or retail levels, a tax on calories would be the most efficient obesity policy. A tax on calories would have the lowest deadweight loss per pound of fat reduction in average adult weight, and would yield a net social gain once the impact on public health care expenditures is considered.

Inflation Responses to Commodity Price Shocks - How and Why Do Countries Differ?

Abstract: This paper relates the inflationary impact of commodity price shocks across countries to a broad range of structural characteristics and policy frameworks over the period 2001-2010, using several approaches. The analysis suggests that economies with higher food shares in CPI baskets, fuel intensities, and pre-existing inflation levels were more prone to experience sustained inflationary effects from commodity price shocks. Countries with more independent central banks and higher governance scores seem to have contained the impact of these shocks better. The effect of the presence of inflation targeting regimes, however, appears very modest and not evident during the 2008 food price shock. The evidence suggests that trade openness, financial development, dollarization, and labor market flexibility do not significantly influence the way in which domestic inflation responds to international commodity price shocks.

The Tuna 'Commodity Frontier': Business Strategies and Environment in the Industrial Tuna Fisheries of the Western Indian Ocean

Abstract: An industrial fishery is a geographical area of operation of a complex of capitals whose form of organization is the firm and whose medium of operation is fishing vessels.Tuna fisheries are among the most highly capitalized and valuable fisheries in the world. This paper distinguishes between two relations that function simultaneously at the point of production in capture fisheries to investigate an empirical account of a ‘commodity frontier’ in tuna (Moore 2010a,b). The first is the vertical relationship between capital and the environmental conditions of production.The second is the horizontal relations between competing fishing firms as they transform nature to produce commodities for the world market.The paper traces the emergence of the European tuna fleet in its search for new commodity frontiers, from the Bay of Biscay (1860s) to the EasternTropical Atlantic (1950s) and the Western Indian Ocean (1980s).The primary empirical focus is the Indian Ocean, where, after appropriating an initial,highly productive surplus,the European fleet intensified fishing activities and has partially undermined the natural conditions for the reproduction of its industrial-scale operations. I argue that the complex dynamics of capture fisheries can be better understood through the prism of a commodity frontier.

The continuing food crisis global policy reforms lag.

Abstract: The world is now nearly five years into what has come to be known as the “food crisis”, sparked in 2007 by rapid spikes in international prices for basic commodities. Commodity prices doubled, the estimated number of hungry people topped one billion, and food riots erupted in more than 30 countries. A second price spike in 2010-11 drove home that this was not a one-off event, that the policies and principles guiding agricultural development and food security are deeply flawed. The glo bal food import bill for 2011 soared to an astonishing $1.3 trillion. There is now widespread agreement that international agricultural prices will remain signifi cantly higher than pre-crisis levels for at least the next decade.

Russian Agriculture during Transition: Performance, Global Impact, and Outlook

Abstract: In the 2000s, Russia emerged as a major player in world agricultural markets, on both the supply (mainly grain) and demand side. This article examines Russia's agricultural transition experience, which has resulted in a complex system of diverse producers and institutions, as well as uneven performance. Using a model of transition agriculture, the article explores how key reform policies drove systemic change and commodity restructuring, and how the ensuing changes in the production, consumption, and trade of goods have affected world markets. The article also assesses the performance of Russian agriculture during transition, and provides an outlook for the future.

Winner Take All: China's Race for Resources and What It Means for the World

Abstract: Commodities permeate virtually every aspect of modern daily living, but for all their importance--their breadth, their depth, their intricacies, and their central role in daily life--few people who are not economists or traders know how commodity markets work. Almost every day, newspaper headlines and media commentators scream warnings of impending doom--shortages of arable land, clashes over water, and political conflict as global demand for fossil fuels outstrips supply. The picture is bleak, but our grasp of the details and the macro shifts in commodities markets remain blurry. Winner Take All is about the commodity dynamics that the world will face over the next several decades. In particular, it is about the implications of China's rush for resources across all regions of the world. The scale of China's resource campaign for hard commodities (metals and minerals) and soft commodities (timber and food) is among the largest in history. To be sure, China is not the first country to launch a global crusade to secure resources. From Britain's transcontinental operations dating back to the end of the 16th century, to the rise of modern European and American transnational corporations between the mid 1860's and 1870's, the industrial revolution that powered these economies created a voracious demand for raw materials and created the need to go far beyond their native countries. So too is China's resource rush today. Although still in its early stages, already the breadth of China's operation is awesome, and seemingly unstoppable. China's global charge for commodities is a story of China's quest to secure its claims on resource assets, and to guarantee the flow of inputs needed to continue to drive economic development. Moyo, an expert in global commodities markets, explains the implications of China's resource grab in a world of diminishing resources.

An expanded role for the mining sector in Australian society

Abstract: Questions over the role of mining in the Australian economy and society have gained increasing public scrutiny in recent years. In this paper we consider whether the role of mining in Australian society has changed with the recent mining boom. The paper draws attention to four key areas. The first is the economics of mining, where a rise in commodity values has made mining more profitable. Mining now dominates Australian exports more than in previous booms. The second area is the scale of mining operations, which have grown substantially, reflecting unprecedented investment. The third area is the degree to which the effects of resource extraction extend to surrounding areas and distant urban centres through long distance commuting. Finally, we consider the centrality of the mining sector in public life: attention to mining in the media and encroachment on other land uses, and we look for evidence of changes in public acceptance of the sector. In conclusion we argue that the role of the mining sector in Australian society and economy has indeed changed. The changes in terms of trade and the scale of mining have made the resource sector so important in Australia that increased impact in public life is unavoidable.

Did speculation affect world rice prices

Abstract: How much did speculation affect the formation of rice prices during the rapid escalation of prices in world markets late in 2007 and early in 2008, through what mechanisms, what will happen as these influences unwind, and how is the story for rice different from other commodities? To answer these questions, this paper addresses four separate topics, each linked to the others by basic mechanisms of price formation. Simple supply and demand models are a start. The difference between short run responses to prices changes, and those responses after full adaptation is possible in the long run, is crucial and the conceptual model highlights the importance of these differences for understanding current prices. History matters. But storage and price expectations also become important for storable commodities in the short run—the length of time the commodity can be stored—a year or so for rice. A model of the “supply of storage,” is used to understand the factors affecting price expectations, and price formation, in the short run. This model is very powerful in its ability to explain hoarding behavior and subsequent impact on prices. Next, an effort is made to understand empirically the impact of financial factors and actors on commodity price formation using very short run prices and Granger causality analysis, for a wide range of financial and commodity markets, including rice. Speculative money seems to surge in and out of commodity markets, strongly linking financial variables with commodity prices during some time periods. But these periods are often short and the relationships disappear entirely for long periods of time. The links between financial markets and commodity markets are not simple nor are they stable. Finally, the paper addresses the long-run relationship between prices of the three basic cereal staples, rice, wheat and corn (maize), since 1900. It is clear there has been a long-

The Growing Financialisation of Commodity Markets: Divergences between Index Investors and Money Managers

Abstract: Commodities are key for developing countries' economic integration. This article distinguishes two types of financial investors in commodities and emphasises differences in position taking motivati...

Economic Linkages, Relative Scarcity, and Commodity Futures Returns

Abstract: This paper shows that economic linkages among commodities create a source of long-term correlation between futures returns. We extend the Theory of Storage to a multi-commodity level and find that the convenience yield of a commodity depends not only on its own scarcity level, but also on its relative scarcity with respect to other economically-related commodities. This result implies a positive feedback effect from one commodity to another that is necessary to replicate the upward-sloping correlation term structure of futures returns observed from the related commodities. Our empirical Multi-Commodity Feedback Affine model (MCFA) allows for a flexible correlation term structure and validates our theoretical prediction. An out-of-sample test using short-maturity crack spread options data shows that our model considerably reduces the pricing error generated by traditional models.

Does Futures Speculation Destabilize Spot Prices? New Evidence for Commodity Markets

Abstract: Motivated by repeated price spikes and crashes over the last decade, we investigate whether the rapidly growing market shares of futures speculators have destabilized commodity spot prices. We approximate conditional volatility and regress it on expected and unexpected speculative open interest. In this context, we split our sample into two equally long sub-periods, and document whether the speculative impact on conditional volatility has increased. However, with respect to six heavily traded agricultural and energy commodities, we find no evidence that this is the case. We thus conclude that the increasing financialization of raw material markets has not made them more volatile.

Mental Accounting and Consumer Choice: Evidence from Commodity Price Shocks

Abstract: We formulate a test of the fungibility of money based on parallel shifts in the prices of different quality grades of a commodity We embed the test in a discrete-choice model of product quality choice and estimate the model using panel microdata on gasoline purchases We find that when gasoline prices rise consumers substitute to lower octane gasoline, to an extent that cannot be explained by income effects Across a wide range of specifications, we consistently reject the null hypothesis that households treat "gas money" as fungible with other income We evaluate the quantitative performance of a set of psychological models of decision-making in explaining the patterns we observe We also use our findings to shed light on extant stylized facts about the time-series properties of retail markups in gasoline markets

The synchronized and long-lasting structural change on commodity markets: evidence from high frequency data

Abstract: This paper analyses the co-movements between the United States stock market and several commodity futures between 1997 and 2011, by computing dynamic conditional correlations at: (i) 1-hour; (ii) 5-minute; (iii) 10-second; and (iv) 1-second frequencies. We document a synchronized structural break, characterized by correlations that have significantly departed from zero to positive territories since late September 2008 and have also remained exceptionally high as of December 2011. Our results support the presence of high frequency trading and algorithmic strategies on commodity markets and have implications for the debate on the financialization of these markets.

Gradual Land-use Change in New Zealand: Results from a Dynamic

Abstract: Rural land use is important for New Zealand’s economic and environmental outcomes. Using a dynamic econometric model and recent New Zealand data, we estimate the response of land use to changing economic returns as proxied by relevant commodity prices. Because New Zealand is small, export prices are credibly exogenous. We show that land use responses can be slow. Our result implies that policy-induced land-use change is likely to be slow or costly.

An analysis of energy price reform: a CGE approach

Abstract: This paper identifies two types of implicit and explicit energy subsidies in Iran as an oil-producing country. Using a computable general equilibrium model, we study the impacts of reducing implicit and explicit energy subsidies, which entails a huge increase in domestic energy prices. The model is based on a Modified Micro Consistent Matrix (prepared by the authors for the Ministry of Energy in Iran), which includes implicit subsidies and sector-specific capital. The model consists of 36 commodity goods and 18 production activities. Our findings suggest that, except for energy and services, overall economic activity declines and the consumer faces a lower level of welfare after subsidy reduction. Energy exports would increase and non-energy exports decline. Domestic energy demand by households and producers would decline as well. On the demand side, the results show a crowding out effect on public goods and services.

Designing the European Gas Market: More Liquid & Less Natural?

Abstract: Designing a gas market is defining how the commodity, the transmission and ancillary services are traded. The European Union has built the commoditization of natural gas through the socialization of several costs of trade. This choice aims at obtaining more liquid markets through the creation of virtual hubs of trade. These virtual hubs ignore most of the network and of the physical gas flows by the creation of entry/exit market zones. Thus the definition of such market zones has tied EU markets inside virtual trading zones (national or sub-national). We show the consequences and the challenges of this European choice, especially at the cross-zone level (often at country cross-border). Once "entry/exit" trade arrangements are preferred, the use of market-based mechanisms for cross-zone decisions like network investments becomes less natural.

Practical Measurement of Affordability: An Application to Medicines/ Mesure Pratique De L'abordabilite: Une Application Aux Medicaments/ Medicon Practica De la Asequibilidad: Aplicacion a Los Medicamentos

Abstract: Introduction Affordability is not an unequivocal concept; Bradley (1) calls it vague, and Whitehead,2 Milne3 and Komives et al (4) deny that it has a clear basis in economic theory The theory assumes that a household chooses the bundle of goods and services that maximizes utility--ie the benefit derived per money spent--subject to its preferences and budget Clearly, different preferences lead to different choices on how much to spend on a particular commodity The definition of what constitutes an "affordable" price is thus a normative one that, according to some, lacks an economic foundation (5) A commodity is obviously unaffordable if it costs more than what is in the full (potential) budget, but such a definition is overly restrictive According to Maclennan & Williams, affordability has to do with securing a standard of living (eg housing, education or transport) at a price that "does not impose, in the eyes of a third party (usually government), an unreasonable burden on household incomes" (6) To operationalize the concept of affordability, one therefore needs: (i) information on household incomes; (ii) knowledge of the price of the commodity in question, and (iii) a definition of "unreasonable burden" This highlights two problems related to measuring unaffordability First, there is arbitrariness in defining "an unreasonable burden" Previous work has identified two ways to define this unreasonable burden: (i) the so-called catastrophic payment method, which is based upon the ratio of the payment for a particular commodity to a household's total resources, and (ii) the impoverishment method, which looks at a household's residual income after paying for a good (2,5-8) The second problem is that to measure affordability in practice requires a large amount of household level data that is often difficult to access, only available for certain years, not comparable across different time periods or countries, or simply lacking To address the second problem while simultaneously acknowledging the first, in this paper we apply the impoverishment and catastrophic payment methods in a manner that can be applied to a broad range of commodities when micro data are scarce We do this by applying these methods using widely available aggregate data, which makes for easy implementation and comparison across countries We explore their use in elucidating the affordability of medicines, a commodity critically related to affordability Indeed, in the developing world, medicines account for a substantial part of health-care costs (9-12) Since most of the population in many low-income countries lacks health insurance, (13) medicines have to be paid for out-of-pocket when people fall ill If their prices are too high, people are unable to procure them and often forego treatment altogether or get into debt (14) It is therefore important to examine and compare the affordability of medicines across countries in the developing world and to monitor the impact of interventions seeking to improve it Measuring affordability As explained before, two approaches are generally used to estimate affordability One relies on the ratio of expenditures to total household resources, whereas the second focuses on the residual income after an expenditure Under the first approach, the payment for a commodity is deemed "catastrophic" (unaffordable) when it exceeds a certain proportion of a household's resources The idea is that if a household spends a large fraction of its available budget on a specific item, it will have to reduce its consumption of other goods and services The affordability threshold is subjective (4,5,15) Studies of this approach, which have focused primarily on the affordability of transportation, (8) education, (16) health care (15,17) and utilities such as energy and water, (18,19) define the affordability of a commodity in terms of the share of available resources that it consumes …

Shipping markets and freight rates: an analysis of the Baltic Dry Index

Abstract: Shipping, although a crucial component of the transportation of commodities worldwide, is hardly present in the finance literature at this point. The first and foremost goal of this article is to describe and explain from an economic perspective the key features of shipping markets; the second one is to analyze the behavior of freight rates, which define the final cost of an imported commodity. The authors focus on the major index, the BDI (Baltic Dry Index), and propose some diffusion models able to capture the unique features of its trajectories, namely large swings and continuity. Their performance is exhibited on a database covering the period 1988–2010. Such spot models should facilitate the growth of the market of freight rates options, a safe hedging instrument for farmers and cooperatives that ship their grains to distant destinations.

Integrating Commodity Markets in the Optimal Procurement Policies of a Stochastic Inventory System

Abstract: In this paper we develop a model for the procurement of traded commodities that incorporates the market-determined term structure of commodity prices. The economic cost of holding a commodity is affected by the spread between the spot and futures prices, which varies stochastically through time; this exogenously imposed holding cost is traded against firm-specific marginal costs and benefits associated with stocking each additional unit of inventory. In addition to storage and backlogging costs, our procurement model also incorporates differential transportation costs associated with forward and spot market procurement, and it allows for selling excess inventory in spot and forward markets. We show, in a multi-period, periodic-review inventory model with stochastic non-stationary demands, that optimal forward procurement policies are characterized by a fixed band. Optimal spot procurement policies are more intricate and can be described as a regulated band. We characterize the band thresholds and develop an algorithm to obtain them by exploiting the structural properties of the optimal policy. Our results suggest that it is possible to reduce inventory related costs significantly by incorporating spot and futures price information in the procurement decision making process. Our results also imply that, apart from price-risk reduction, the potential savings in transportation costs associated with forward procurement could entice manufacturers to procure a significant fraction of goods from forward markets, using spot procurement only to fine tune stocking levels and recover from emergencies.

The contemporary China resources boom

Abstract: Commodity prices are formed by the interaction of global economic growth and costs of expanding supply of commodities. They tend to be high for long periods when global average growth rates are high, and low for long periods when growth rates are low, and to fluctuate around these averages as short term demand departs from expectations. The growth of advanced developing countries is especially influential in determining global demand for resources. Exceptional growth and resource intensity of China have been the main determinants of high energy and metals prices since about 2003. Short term cyclical factors have pushed energy and metal prices higher still, because markets did not anticipate the strength of Chinese demand and supply takes time to catch up. The high resource intensity of Chinese growth has been the result of high investment rates and rapid increases in urban population and the export share of production. Strong growth is likely to continue although at slowly receding rates, but growth will become less resource intensive, leading to moderation of global commodity prices. Strong growth in China and the world are at risk if effective policies are not adopted to break the nexus between economic growth and pressure on the environment. Australia is currently experiencing a resources boom of historical dimensions. Its immediate cause is sustained rapid resource-intensive growth in China. Australia’s terms of trade have reached heights unknown on a sustained basis in the historical record. Australian exports are now (although in the 21st century decreasingly) more diversified away from commodities than they were through most of its history, so relative prices of commodities had to move higher than in earlier times to take overall terms of trade above peak levels in the late nineteenth and most of the 20th century. After several years in which investment in expanding supply capacity lagged behind the lift in prices, the rates of growth of investment in the resources sector have been rising strongly since about 2005. Since the Global Financial Crisis of 2008, resources have been overwhelmingly the main contributor to exceptional growth in Australian business investment in general. Minerals

A Reappraisal of Investing in Commodity Futures Markets

Abstract: Investments into commodity-linked products have grown considerably in recent years Unlike investments in equities, commodity futures markets produce no earnings; the source of returns is thus unclear This paper examines returns to static long-only US commodity futures investments over five decades and finds that returns to individual futures markets are zero, and the returns to futures market portfolios depend critically on portfolio weighting schemes Historical portfolio returns are not statistically different from zero and are driven by price episodes such as that of 1972-1974 In other periods, portfolio returns are zero or negative Overall, the case for long-only investment in commodities may not be as strong as that implied in some studies (eg, Gorton and Rouwenhorst, 2006a) If so, the growth in long-only commodity investments may naturally subside and ease the policy debate regarding speculative position limits