During the last five years, many commodities hit record high prices as there appeared to be a global shortage looming. These price explosions were primarily driven by rapidly increasing consumption in China and other developing countries, but came at different times. Nearly every commodity we follow in this column made a record high price between 2008 and now, but many have fallen back to earth due to innovation, the power of supply & demand, or recessions.
In 2008, crude oil prices hit a record high over $147 per barrel as global fuel consumption boomed and new sources of oil were harder and harder to find. Since then, the global economic crisis and advances in fuel economy have undercut fuel demand, while the rapid development of shale oil in the United States increased domestic production by nearly 30%. This has resulted in record-high crude oil supplies in the United States and crude oil prices hovering near $93.
In 2011, cotton prices tore over $2.25 per pound after heavy rains damaged the cotton crop in India, Pakistan and Australia, all major producers. That year's small crop could not meet rising Chinese demand for the fiber, pushing prices sharply higher. As prices rose, farmers raced to plant cotton, trying to capitalize on the high prices, which ultimately led to an overabundance of cotton and sharply lower prices. Some sources now say that China has enough cotton in storage to meet its demand for a full year, which is further depressing cotton prices, now under 77 cents per pound.
Last September, soybean prices ran up to a record high at $17.92 per bushel after a drought ravaged the US bean crop, leaving few soybeans in storage to feed growing US and Chinese livestock herds. This year, better US growing weather and increasing global planting has helped to relieve the shortage, pulling prices down to $13.31 on Friday morning.
Meanwhile, other commodities are being produced in record amounts this year, including gold, copper, corn, and natural gas, driving prices lower for all of these markets as well.
For producers and consumers, these boom and bust cycles in commodity prices can be treacherous, but the futures markets also allow these individuals to lock in prices for the future, ensuring that they can continue in their commodities-related business for years to come.