How do commodities influence market pricing?

July 7th, 2015

Commodities influence the economy by impacting future prices of goods that are tied to them within the market.

 

Todays post is by Ronald D. Southard, CEO at SafeSourcing Inc.

So are you a buyer, a category manager, a commodities trader or a little bit of each? Be careful because commodities make your job of buying tricky.

As an example, Oil is the most widely watched commodity. This is because the price of oil changes daily which has a great effect on other goods and services that are produced around the world. As such commodities have an impact on supply and demand of almost all products.

Let’s take a look at a fairly simple example.  As a buyer you are planning to buy Windshield Washer Fluid, Anti Freeze products or both. Consumers buy these products at Grocery Stores, Auto Parts Stores, General Merchandise Stores, Convenience Stores and Drug Stores. There are many global suppliers for these products whether they are private label in nature or mixes for use at service stations. The products can be near shored and off shored. The commodity markets that drive pricing in these items are actually quite a few such as the methanol market, ethylene glycol market and resin indexes that effect packaging. If that were not enough, the product is also influenced by the price of oil because of its impact on the logistical component or how the products get to market. This can be a combination of ocean bound freight and land freight both of which are impacted by the price of fuel. The packaging of these products is also influenced by another commodity which is the pulp market that drives pricing for corrugated and other paper based packaging.

So,  it’s a pretty simple product and you just got a good price. The question is did you really? You better go back and take a look at the fine print. Look for escalator language.

Your best bet however might be to find someone that knows what they are doing in the procurement solution provider space.

If you think that’s complicated, how many products do you think are influenced by the price of corn, maize or its genetic modifications?  The answer is 100’s including  non edible products like glue for packaging. As such the influence may be actually in the 1000’s. How do you keep up with the changes in this commodity?

For more information, please contact a SafeSourcing Customer Services Project Manager in order to learn more.

We look forward to and appreciate your comments.

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