Should prices really be rising based on the commodity markets?

January 27th, 2011

I was reading an article the other day and McDonalds Corporation said they would have to raise prices based on increases in the commodity markets.

Then yesterday as I was browsing another subject, I found the following on MSN. “Commodities had a weak session, which culminated in a 1.5% loss for its worst single-session slide in three weeks. Weakness was widespread among commodities”. My response was huh?

So just what is a commodity and how can a company keep track of these trends for themselves. According to Wikipedia a commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. Commodities are often substances that come out of the earth and maintain roughly a universal price.

Your product costs should fluctuate periodically based on the commodity markets, but being aware of them allows you to enter terminology in your contracts that should protect you against any significant spikes and your supplier against any significant drops in the market. Without this language you are really playing Russian roulette with your company’s money.

Commodities exchanges that you can easily follow include:

1. Chicago Board of Trade (CBOT)
2. Chicago Mercantile Exchange (CME)
3. Dalian Commodity Exchange (DCE)
4. Euronext.liffe (LIFFE)
5. Kansas City Board of Trade (KCBT)
6. Kuala Lumpur Futures Exchange (KLSE)
7. London Metal Exchange (LME)
8. New York Mercantile Exchange (NYMEX)
9. National Commodity Exchange Limited (NCEL)
10. Multi Commodity Exchange (MCX)
11. International Indonesian Forex Change Market (IIFCM)

If you have a quality e-procurement partner they should be able to provide you with this type of data because it is still possible to compress pricing even in an up market. This author is not sure the preset trend is in that direction however.

We look forward to and appreciate your comments.

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