The daily movements of the world stock market are affected by many factors, from large institutional block transactions and program transactions to earnings and economic reports. One factor that caused a sensation was the impact of commodity prices. In fact, the fluctuation of commodity prices will have a huge impact on the profitability of listed companies, which in turn will have a huge impact on the market. Read on to learn more about this relationship and its importance to investors.
The average person may never consider the cost of wood unless they are building a house. However, the pricing of this product is closely watched and may affect many companies and individuals, such as home buyers. In fact, the relationship between housing demand and timber prices is closely related. If the price of wood rises, this will directly affect the cost of building construction, which in turn will have an impact on the real estate market. Logically, the price of wood will also affect the cost of many other types of structures being built.
The United States has about 5% of the world’s population and consumes about 28% of the world’s industrial wood products. U.S. domestic timber stocks account for 10% of the earth’s supply, while 96% of U.S. industrial timber consumption comes from domestic supplies.
Many consumers only consider how oil prices directly affect their wallets. In other words, how much will they end up paying at the gas station due to price fluctuations. However, oil is one of the cornerstones of the global economy, and its price is extremely important to all kinds of companies.
Oil prices affect many industries, from retailers to plastic manufacturers to transportation. Think about how all the products on the local Wal-Mart (WMT) and Target (TGT) shelves are shipped.
If the price of oil rises and generalizes it, this means that these companies will either have to eat the rising fuel costs or try to pass part of the cost to consumers at higher prices. Unfortunately, if they fail to pass on the cost increase, it will have an adverse effect on profit margins and net income, which will put downward pressure on stock prices and hurt investor returns.
In addition, for example, the price of jet fuel used on airplanes directly affects the fees that airlines charge for air tickets. If oil prices rise, airlines usually pass on part of the cost to consumers. If the ticket price is too high, people will travel less. This will not only affect airlines, but also the tourism industry. Many cities and countries rely on tourism as an important source of income.
Changes in oil prices have far-reaching effects because it is one of the main energy sources in our world and is used in many daily products.
Cotton is used more than any other fiber in the world and is an important source of income for the United States and many other cotton-producing countries. Cotton is used in a variety of commodities, and one of the most common commodities is clothing. As a large number of clothes contain a lot of cotton, price fluctuations will affect the cost of sales of clothing retailers.
However, the impact of the cotton industry does not only affect the price of the final product. The cotton industry is a behemoth, employing more than 250 million people worldwide and is the source of 7% of the labor force in developing countries. Any adverse price changes will affect employment on a large scale. The annual cotton output reaches billions of dollars in related production services, and cotton factories and cotton factories have a vested interest in the healthy development of the cotton industry.
Wheat is the third largest crop industry in the United States, after cotton and soybeans. The wheat industry chain has far-reaching influence, from bread to beer to flour, from livestock feed to seeds. Obviously, the wheat market has a great impact on the global economy. For example, if the price of wheat rises, it will increase the cost of raising livestock, thereby increasing the cost of meat. This increases the purchase price of stock shelves in grocery stores. Changes in wheat production and any other commodities related to this will also have an impact on distributors and any intermediaries. (For more information, see: Increase your finances in the grain market.)
Almost everyone uses corn in one form or another. It is an ingredient in grains, building materials, soda, alcohol and even tires. Corn prices are also affected by ethanol demand and production, which is an increasingly popular corn fuel. As the demand for alternative fuels increases, the price of corn may be higher. Food manufacturers, retailers, consumers and stock prices will all be affected by corn price fluctuations.
The coffee industry is huge. It is the most consumed beverage in the United States, including water. The coffee supply chain is very extensive. From small coffee plantations in developing countries to big companies such as Starbucks (SBUX) and McDonald’s (MCD). Changes in coffee prices will not only affect the price we pay for a cup of coffee, but also the lifestyles of poor coffee farmers in developing countries. The global coffee industry is worth more than 100 billion U.S. dollars and accounts for a large part of the GDP of many countries.
The price of gold has an impact on jewelers and retailers who sell or receive part of their sales from jewelry-related items. For example, Macy’s (M) and many other well-known shopping mall department stores generate a lot of revenue from their jewelry department.
Gold can also be used in medical products, glass manufacturing, aerospace and various other businesses. By extension, this means that fluctuations in the price of gold can promote market volatility.
In addition, because gold is found and valued all over the world, it is considered a universal currency. Therefore, if the U.S. stock market and/or economic outlook is bleak, demand for gold may increase as investors “flock to safe-haven assets”. If it looks like the economy is about to recover or corporate profits will rise, investors will often abandon gold and turn to stocks. (For more information, see: Is investing in gold still worth it?)
Although there are many factors that can affect the market, commodities can have a significant impact on companies, individuals, stocks, and investment portfolios. When you plan to invest in a particular industry or company, please check the prices of related commodities and what this means for your future investment.