Iowa Public Television


World Demand For Commodities Slows

posted on March 21, 2003

Hello, I'm Sid Sprecher. Mark Pearson is off this week.

In more normal times the week's financial news would have been dominated by domestic matters.

The U.S. House passed a 2.2 trillion dollar budget, containing more than 700 billion dollars worth of tax cuts over a decade. The government's numbers showed inflation jumped in February and a gauge of leading economic indicators fell.

All of those reports, signals, barometers, however take a back seat to the single biggest fundamental in the marketplace, the War with Iraq. The uncertainty that such conflict usually brings has not fully materialized. Prior to the start of air strikes, Wall Street rallied on the fact the White House had issued a deadline. The street hates uncertainty. Through the remainder of the week the Dow and other stock indices continued to record strong gains, while commodity markets, confident the war would not be a disruption to the world economy, began a sell-off.


World Demand For Commodities Slows

Even before the beginning of the war, futures trading activity had begun to project an expected rise in stockpiles of nearly every commodity. The CRB index that Market to Market uses to track broad demand for commodities has retreated sharply from its highs. Some of the fall is attributable to slacking consumer demand during a period of national angst. But much more of the index's plummet is led by the free fall of gold and oil prices. A few weeks ago, April oil futures prices were approaching 40 dollars a barrel. This week the price was below 30 dollars.

The same trend holds for Natural Gas Futures. The drop in energy prices is significant to the nation's energy intensive agri-economy. A three dollar increase in the price of natural gas adds about 100 dollars per ton to the production cost of anhydrous ammonia. Even with the price drop corn farmers who expect to hit the fields in a few weeks are finding fertilizer prices running as much as 40 percent higher than a year ago.


Tags: agriculture markets news