Commodity prices fall to pre-pandemic levels

Lumber prices have fallen to their lowest level in more than two years, returning to pre-pandemic levels. This deflationary trend is also apparent across the entire spectrum of commodities.

When it comes to celebrating, few things are as fun and festive as popping a bottle of champagne.

The headlines paint a picture of an industry under stress: "Stock Traders Brace for More Volatility," "Market Turmoil Roils Asset Managers," "Your Next 401(k) Statement Could Be Scary." This is not the picture of

  • Cotton prices have dropped back to earth, after reaching stratospheric heights earlier this year.
  • It's good news for homebuilders and buyers: lumber prices have fallen to their lowest level in more than two years. That means prices are back to what they were before the pandemic hit. The decrease in lumber prices is due to a combination of factors, including a decrease in demand and an increase in supply.
  • It is a difficult time for the copper industry as prices have fallen to their lowest level in nearly two years. This is causing financial difficulties for companies and jobs are at risk. The industry is hoping for a rebound in prices, but it is uncertain when this will happen.
  • It's been a tough few months for oil prices, with U.S. crude shedding about $35 a barrel. But there may be some relief on the horizon.
  • For the first time in two years, average rents in the United States have dropped.
  • It's official: home prices have suffered their first monthly decline in years. This news will come as a shock to many homeowners and potential homebuyers who have been watching the housing market closely in recent years.

It's official: deflation is here. For the first time in years, prices are falling across the economy. From homes to cars to food and clothing, deflation is making life cheaper for consumers.

The Supply-Side Shocks: How They Impact the Economy

The pandemic has been a massive shock to the global economy, and the war in Ukraine has only made things worse. The IMF's $9 trillion stimulus package has helped to stabilize the situation, but the global economy is still facing significant challenges.

  • The current state of the economy is unprecedented, with consumers spending less on services and more on physical goods. This shift in spending habits has caught many businesses off guard, and they are struggling to keep up with demand. Prices for goods are rising as a result, and it is unclear how long this trend will continue.
  • The forecasting errors by manufacturers have created shortages everywhere, from supermarket shelves to auto dealers’ lots. The logistics managers have struggled to cope with the business-as-not-usual situation, leading to widespread disruptions in the supply chain.
  • The Ukraine War has caused widespread economic disruption, particularly in the financial and energy sectors. This has led to shortages, sanctions and sabotage, which have further dislocated the global economy.
  • The Covid pandemic has severely impacted global supply chains, with China being a major source of disruptions. Lockdowns, quarantines and travel bans have crippled critical segments of production, resulting in widespread shortages of key goods and materials.

The modern world is heavily reliant on supply chains to produce and deliver goods. However, these supply chains are often complex and vast, which can lead to significant stress and disruptions. In order to maintain a high standard of living, it is important to ensure that supply chains are efficient and effective.

It is truly disheartening to see the state of the economy today. Inflation is running rampant, consumer confidence is at an all-time low, and policy-makers are scrambling to contain the situation. The Fed has caved to the pressure and is now implementing policies that will result in millions of workers losing their jobs. Families will be ruined, houses will be lost, and pensions will be decimated. All of this in the name of "taming inflation." It is outrageous that the Fed would sacrifice so many innocent people in the name of a dubious goal. The All Clear will sound eventually, but the damage that will be done in the meantime is unconscionable.

The Self-Healing Nature of the Supply Chain

It is tragic that so much angst has been needlessly generated over the last 12-18 months, as the bottlenecks exacerbating price inflation are now beginning to break down. The critical supply constraints that have fueled price increases are now beginning to ease decisively. This offers hope that the worst of the inflationary pressures may soon be behind us.

Looking at the current inflation, it is clear that the main cause is due to issues with the supply side. While this can be painful in the short term, it is also something that will eventually correct itself. This is good news for the long term health of the economy.

Looking back on the early days of the pandemic, it is striking how quickly things can change. Just a few months ago, we were desperately searching for essential items like hand sanitizer and face masks. Now, we are more prepared and have a better understanding of how to protect ourselves from the virus. However, there are still some challenges that we face. For example, getting a Covid test can be difficult and expensive. But overall, we have made progress in our fight against the pandemic.

It's hard to believe that it's been less than a year since the pandemic started. It feels like so much has changed in such a short amount of time. One of the most noticeable changes has been in the way that stores are stocked. In the early days of the pandemic, there was a mad rush to buy up all the hand sanitizer and toilet paper. Now, it seems like there's an overabundance of both of those items. And with more and more people getting vaccinated, it's likely that things will start to return to normal even more in the coming months.

Covid Tests at CVSPhoto by author
I believe that the availability of Covid tests at CVS will help to ease the burden on the healthcare system and help to keep people healthy.

The example of Europe's energy crisis illustrates how quickly things can change. When Russia attacked, it seemed that Europe would be dependent on Russian gas and oil for years to come. However, German customers have reduced their energy usage significantly, and gas reserves are now at 91% of capacity. This shows that it is possible for things to change quickly, and that we should not take anything for granted.

  • Germany's reduced consumption of natural gas in the first five months of this year is a sign that the country is working to become more energy efficient. The decline in consumption deepening in May shows that Germany is committed to this goal. Only part of the drop was due to a milder winter, which shows that the country is making progress in reducing its reliance on gas. The decline in consumption last month was 11%, which is a significant step forward.

It is good news that Europe is confident that it will make it through the current crisis without an energy crash. However, it is unfortunate that Putin has attempted to weaponize the gas supply. Hopefully this bottleneck will be uncorked soon and the situation will be resolved.

This is the essential power, and the lesson, of the Market. When a disequilibrium develops, often because of an external shock, markets respond – which is to say that suppliers respond, customers adapt, and before long equilibrium is re-established. Show me a shortage, and in 3 months, or a year (depending on the type of product), I’ll show you deflation, and, in all likelihood, a glut. The Market is a powerful tool that helps to ensure that prices stay stable and in equilibrium. When there is a shortage of a product, suppliers will respond by increasing production and offering the product at a lower price. This will eventually lead to a glut of the product, and prices will fall back to equilibrium.

It is clear that the process of globalization is having a profound impact on many different markets and commodities around the world. This is creating new opportunities and challenges for businesses and consumers alike.

Some examples of commodities: Copper, Cotton, Lumber, Iron Ore, Crude Oil

Copper is a versatile metal with many uses.

I believe that the "Doctor Copper" is a great place to start for people who want to learn about the benefits of copper for their health.

  • The term "Doctor Copper" is a market term for a base metal that is said to be able to predict global economic turning points. This metal is thus seen as having a lot of value in terms of economic forecasting.
An employee monitors the 8mm diameter copper cable which is rolled up before passing through a ... [+] rolling mill to become cable at the Nexans manufacture in Lens, northern France, on May 11, 2022. - The French cable company is the only one in its sector to have its own copper foundry in Lens. This plant represents a competitive advantage for Nexans at the dawn of an explosion in demand for electrical cables. (Photo by Denis Charlet / AFP) (Photo by DENIS CHARLET/AFP via Getty Images)AFP via Getty Images
The French cable company Nexans is the only one in its sector to have its own copper foundry in Lens. This plant represents a competitive advantage for Nexans at the dawn of an explosion in demand for electrical cables. With this plant, Nexans is able to produce 8mm diameter copper cable which is rolled up and passed through a rolling mill to become cable. This process gives Nexans a leg up on the competition and allows the company to produce high-quality cables for its customers.

Some experts believe that the recent surge in the price of copper is a sign of inflation to come. Copper is used in a wide range of applications, and the price increase is expected to impact the cost of many goods and services. This could lead to inflationary pressure in the economy, which could be a challenge for consumers and businesses alike.

  • As copper prices surge to record highs, some investors are bracing for inflation to pick up. This recent price spike is just one reason why inflationary pressures may start to build in the coming months. Higher prices for key commodities like copper are often passed on to consumers in the form of higher prices for goods and services.
Copper Price Per Metric TonChart by author
Looking at the chart, it is evident that the price of copper has been on the rise in recent months. This is good news for those in the copper industry, as higher prices mean higher profits.

It is clear that the copper market is experiencing significant deflationary pressure at the moment. This is likely due to a combination of factors, including lower demand from key industries such as construction and manufacturing, as well as a strong US dollar. While the market is expected to stabilize in 2021, it is important to keep an eye on copper prices in case they continue to fall.

Change in Copper Price (Monthly % Year over Year)Chart by author
There is no doubt that the price of copper is volatile. However, the long-term trend seems to be upward, albeit with some ups and downs along the way.

Cotton is a soft, fluffy fiber that grows around the seeds of the cotton plant.

The trend in cotton prices is similar, with prices rising slightly over the past year. However, experts expect prices to fall in the coming months as supply increases.

CLARKSDALE, MS -OCTOBER 19: A cotton boll waits to be harvested on BTC farm October 19, 2003 near ... [+] Clarksdale Mississippi. BTC raises 1000 acres of cotton, 80% of which is genetically modified (GM) Bt, Roundup Ready cotton. The government mandates at least 20% of the crop is planted with conventional cotton to help prevent insects from developing an immunity to the GM products. BTC plans on planting 100% of its cotton acreage in conventional cotton next year to take advantage of the premium paid by mills. (Photo by Scott Olson/Getty Images)Getty Images
Looking to the future, we see a world where more and more of our cotton is grown using genetically modified (GM) seeds. This trend is being driven by the increasing demand from mills for GM cotton, as well as the government mandates that require a certain percentage of GM crops to be planted. This is good news for farmers, as it means they can expect to receive a premium for their GM cotton. We expect that 100% of cotton acreage will be planted in GM cotton within the next few years.
Cotton prices Oct 2021 - Sept 2022Char by author
Cotton prices are expected to remain relatively stable over the next year, with only a small increase expected in October 2021.

Cotton prices are expected to continue to rise in the coming months due to supply constraints. A severe drought in the US this summer has devastated the cotton harvest, and prices have already begun to increase as a result. This trend is expected to continue in the coming months, so consumers should be prepared to pay more for cotton products.

  • As the southwestern United States enters another summer of drought, cotton growers are being forced to abandon millions of acres of dry, parched land. This is leading to forecasts of the weakest cotton harvest in more than a decade, and prices for the commodity are expected to rise sharply as a result. This will be a devastating blow to many farmers in the region who are already struggling to make ends meet.

It seems that the recent drop in cotton prices may have been due to economic worries and the strong dollar, rather than any real shortage in supply. This is good news for consumers, as it should help to keep prices down. However, it is worth keeping an eye on the situation in case the worries turn out to be founded and the prices begin to rise again.

  • It's been a tough few weeks for cotton farmers. Prices have dropped sharply, erasing all the gains made earlier in the year. This is all due to a forecast from the US Department of Agriculture that predicted that a large portion of this year's crop would be lost to drought. Farmers are now scrambling to try and salvage what they can, but it looks like it could be a tough season for them.

Looking for lumber? We've got you covered!

  • The hot commodity in the United States (U.S.) these days is wood. According to the Wall Street Journal (WSJ) on July 9, 2020, the high demand for wood has led to soaring prices for the commodity.

CHICAGO, ILLINOIS - APRIL 05: Stacks of lumber are offered for sale at a home center on April 05, ... [+] 2021 in Chicago, Illinois. Lumber prices have more than tripled since last April due in part to COVID-19 restrictions hampering sawmills and low home mortgage rates driving new home construction, causing an increase in demand.  (Photo by Scott Olson/Getty Images)Getty Images
As the pandemic continues to drive up lumber prices, more and more homeowners are turning to home improvement projects to add value to their homes. With interest rates remaining low, now is the perfect time to invest in your home. Whether you're looking to add an extra bedroom, renovate your kitchen, or simply update your home's exterior, there are plenty of ways to add value to your property. So, if you're thinking about making some home improvements, now is the time to do it.

There is no doubt that lumber prices have been on the rise in recent years, and many experts believe that this is indicative of impending inflation. While we have not seen the full effects of inflation just yet, it is clear that it is a looming problem that could have major implications for the economy in the years to come.

Lumber Prices Oct 2017-Sept 2022Chart by author
It is predicted that lumber prices will continue to rise in the next five years. This is due to the increasing demand for lumber, as well as the limited supply.

It's good news for homebuilders and anyone looking to do some remodeling: the price of lumber has fallen back to its pre-pandemic level.

The Lumber market gyrations show how forecasting errors create supply-side failures.

  • The lumber and plywood industries have been booming in recent months, thanks to the stay-at-home orders brought on by the pandemic. Industry insiders say that many saw mills closed up shop and moved into doing maintenance and repairs, figuring demand would drop with people losing their jobs and watching their spending. But what actually happened was the opposite, with lumber and plywood flying off shelves as people stayed home and used their time to build decks, fences, and pergolas. Harvard University's closely followed forecast of home-renovation spending predicted a slowdown, but the model couldn't have predicted a pandemic that kept Americans at home for months. Mill orders backed up, and the industry is struggling to keep up with demand.

The hoarding of goods by customers in response to shortages is a natural reaction, but one that can exacerbate the supply problems in many industries. In the case of the semiconductor industry, for example, hoarders can create artificial shortages by buying up available supplies, leading to higher prices and further shortages. While there may be some element of increased demand in the current situation, the main issue appears to be a lack of alignment between supply and demand.

Iron Ore: The Key to a Strong Economy

Iron Ore Production, Vale Mining (Northern System), State of Minas Gerais, Brazil. (Photo by Giles ... [+] Barnard/Construction Photography/Avalon/Getty Images)Getty Images
The Brazilian state of Minas Gerais is home to a wealth of natural resources, including iron ore. Vale, the world's largest iron ore producer, has mines in the region. production from these mines is vital to the global economy, and the company is committed to sustainable practices.

It is clear that the economy is far less dependent on iron and steel than in the past. However, iron ore prices have surged in recent months and are now almost back to pre-pandemic levels. This shows that iron and steel are still important commodities in the global economy.

Change in Iron Ore Price (Monthly % Year over Year)Chart by author
It is clear from the chart that the price of iron ore has increased significantly in the past year. This is good news for iron ore producers, as they will be able to sell their product at a higher price.

Crude Oil: The Black Gold of the 21st Century

Crude is the mother of all commodities and is said to be a prime mover of inflation in the economy. As inflation rises, the costs of goods and services increase, which can have a negative impact on the economy.

CULVER CITY, CA - APRIL 25:  Oil rigs extract petroleum as the price of crude oil rises to nearly ... [+] $120 per barrel, prompting oil companies to reopen numerous wells across the nation that were considered tapped out and unprofitable decades ago when oil sold for one-fifth the price or less, on April 25, 2008 in the Los Angeles area community of Culver City, California. Many of the old unprofitable wells, known as
With the price of crude oil rising to nearly $120 per barrel, oil companies are reopening numerous wells across the nation that were considered tapped out and unprofitable decades ago when oil sold for one-fifth the price or less. Many of these old unprofitable wells, known as "stripper wells", are located in urban areas where home owners are often outraged by the noise, smell, and possible environmental hazards associated with living so close to renewed oil drilling. Since homeowners usually do not own the mineral rights under their land, oil firms can drill at an angle to go under homes regardless of the desires of residents. Using expensive new technology and drilling techniques, California producers have reversed a long decline of about 5 percent annually with an increased crude flow of about 2 1/2 million barrels in 2007 for the first time in years. Despite the environmental and quality of life concerns of many urban residents, the increased production of oil from these "stripper wells" is likely to continue as long as the price of crude oil remains high.

The price of oil has been severely distorted by the succession of external macro-shocks – even at one point going negative in the pandemic dislocation, and then surging when the Ukraine war started. However, I believe that the price of oil will eventually stabilize and return to a more normal level. The current situation is unsustainable and the market will eventually correct itself.

Crude Oil Price 2020-2022Chart by author
It is expected that the crude oil price will remain relatively stable in 2020 and 2021, before increasing slightly in 2022.

It is difficult to predict the future of inflation, but it seems that in the short term, deflationary trends may continue. This could have negative implications for the economy, as it could lead to decreased demand and lower prices for goods and services.

Q3 2022 Crude Oil DeflationChart by author
Looking at the chart, it is clear that crude oil prices are expected to fall in the third quarter of 2022.

It's good news for oil producers that OPEC is considering production cuts to prop up prices. Crude futures have jumped 5% on the news. Oil is a special case, of course, and its prices are not entirely market-driven. Nevertheless, a production cut is a supply-side constraint, so if it creates inflation, it will be part of the overall supply-driven picture. This is positive news for the oil industry and should help support prices in the short term.

Deflation: Get Used To It

It's clear that the pandemic has had a major impact on commodity markets, with prices still elevated in many cases. However, prices are beginning to come down, and are expected to return to pre-pandemic levels eventually. This is good news for consumers, who have been struggling with higher prices for essential goods.

There is a new argument being put forward that the recent price declines are due to weakening demand. However, this is not accurate at present. While a recession may be on the horizon due to misguided central bank policies and perhaps Xi Jinping's continued mistakes, it has not arrived yet in the United States. This does not explain the deflationary trend across our economy that has been seen in the last two quarters. The labor market is still strong and retail sales are healthy. The price declines are not being driven by weak demand, but rather by improvements in supply.

Shocks in the market create bottlenecks that drive up prices. However, these trends are typically deflationary across the commodity spectrum, meaning that prices will eventually stabilize or even drop.External shocks can disrupt this process, but the market is typically efficient in correcting itself in the long run.

I believe that the true driver of inflation today is not the supply of goods and services, but the demand for them. With more and more people wanting to buy goods and services, businesses are able to charge higher prices, and this is reflected in the inflation rate.