What These Three Commodities May Be Telling Us for 2011
I learned something interesting about three commodities: cereal, iron ore and oil. I hadn't realized how these three really represent the day-to-day working of economies around the world. But it makes sense doesn't it?
Just as interesting - and really more important - is the fact that these three commodities are up between 50% - 120% from their lows in 2009. Those were the lows hit after the big financial crisis in 2008 tripped the recession that broadsided most of the world's economies and drove commodity prices down. So let's look at what this steep rise in cereal, iron ore and oil might mean to us in our New Year of 2011.
Cereal feeds people and animals. It's a really fundamental commodity that reflects what it costs to eat. Eating's about as basic as it gets. Cereal's a category that covers rich, poor and all those in between. So if the cost of eating goes up, it hits everyone. I'm not so worried about the rich, of course, but for the poor it means increased hunger. And for lots of those in the middle, it could mean they'll be spending more money on food, with less money to spend on other items. The economy's going to have a hard time climbing out of our recent recession if people have less money to spend on non-food items.
Iron ore is a staple of manufacturing. For example, steel is made from iron ore. The machines that manufacture stuff are made of iron or steel, among other metals. If iron prices keep going up, the machines that we rely on to make things will get expensive. Then the stuff that gets made by machine (which is most things) will get more expensive. And if people have less to spend on manufactured goods to begin with because they've got to spend more on food - because of the rise in the price of cereals - well, you get the picture.
Oil, of course, still powers the world. Forget all the stuff you read about "alternative" energy sources. Sure, someday the world's energy won't be so dependent on oil. But "someday" is probably 20 years or so away. Meanwhile, oil's still king. The world runs on oil. It's not just the U.S., or the West. China - which uses more coal than any other country and isn't so worried about how their coal power isn't "environmentally correct" still uses, and will continue to use, oil. So if the cost of energy goes up, then the cost of running the machines that make things goes up. And if the cost of the machines goes up and the cost of running them goes up, and the stuff that's made goes up - but people have less to spend on that stuff - well, all that economic revival that seems to be taking place isn't going to get very far.
Now, I'm not predicting that the price of cereal, iron ore and oil will keep going up as much as it has. After all, it rose from a depressed level, so maybe the price over the next two years doesn't go up another 50% - 120%. But if it goes up less, it's still going to put a strain on economic recovery - unless people start making a lot more money. And it doesn't seem likely that unemployment's going down significantly. At least I can't see how that's going to happen.
So here's a pretty "How-dee-do" to 2011. But, hey, we'll just have to wait to see how things turn out, won't we? Let's just enjoy the New Year for now.
Just as interesting - and really more important - is the fact that these three commodities are up between 50% - 120% from their lows in 2009. Those were the lows hit after the big financial crisis in 2008 tripped the recession that broadsided most of the world's economies and drove commodity prices down. So let's look at what this steep rise in cereal, iron ore and oil might mean to us in our New Year of 2011.
Cereal feeds people and animals. It's a really fundamental commodity that reflects what it costs to eat. Eating's about as basic as it gets. Cereal's a category that covers rich, poor and all those in between. So if the cost of eating goes up, it hits everyone. I'm not so worried about the rich, of course, but for the poor it means increased hunger. And for lots of those in the middle, it could mean they'll be spending more money on food, with less money to spend on other items. The economy's going to have a hard time climbing out of our recent recession if people have less money to spend on non-food items.
Iron ore is a staple of manufacturing. For example, steel is made from iron ore. The machines that manufacture stuff are made of iron or steel, among other metals. If iron prices keep going up, the machines that we rely on to make things will get expensive. Then the stuff that gets made by machine (which is most things) will get more expensive. And if people have less to spend on manufactured goods to begin with because they've got to spend more on food - because of the rise in the price of cereals - well, you get the picture.
Oil, of course, still powers the world. Forget all the stuff you read about "alternative" energy sources. Sure, someday the world's energy won't be so dependent on oil. But "someday" is probably 20 years or so away. Meanwhile, oil's still king. The world runs on oil. It's not just the U.S., or the West. China - which uses more coal than any other country and isn't so worried about how their coal power isn't "environmentally correct" still uses, and will continue to use, oil. So if the cost of energy goes up, then the cost of running the machines that make things goes up. And if the cost of the machines goes up and the cost of running them goes up, and the stuff that's made goes up - but people have less to spend on that stuff - well, all that economic revival that seems to be taking place isn't going to get very far.
Now, I'm not predicting that the price of cereal, iron ore and oil will keep going up as much as it has. After all, it rose from a depressed level, so maybe the price over the next two years doesn't go up another 50% - 120%. But if it goes up less, it's still going to put a strain on economic recovery - unless people start making a lot more money. And it doesn't seem likely that unemployment's going down significantly. At least I can't see how that's going to happen.
So here's a pretty "How-dee-do" to 2011. But, hey, we'll just have to wait to see how things turn out, won't we? Let's just enjoy the New Year for now.
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