Instead, CFOs and treasurers would be better off seeking their own partners, as well as looking at technologies that may allow them to reduce their use of energy, Kerr says. Companies that use large quantities of certain commodities also will want to consider locking in their sources of supply. In addition, they should determine how best to hedge against rising commodity prices.
In addition, the creation of several new financial products, such as exchange-traded funds focused on commodities, has had several effects. While the products add liquidity to the markets, they also can lead to price increases oakley sale sunglasses, Kerr says. That’s because some of the people now investing in commodities are new to the market, and their activities have helped push prices higher.
Kerr notes that that the major commodities, such as rare earth metals, grains, copper, and gold, all are climbing considerably. The increases are especially significant, he notes, considering that the global economy is slugging through one of the worth downturns in decades.
However, that doesn’t appear likely for a while http://goodcoachoutlet.weebly.com, according to Kerr. He predicts crude oil hitting $200 per barrel within a year or two, up from about $85 today. “The cost of these resources will fluctuate, but the long-term trend is up,” he says. ###
Over the past year, the price for coffee has jumped 46 percent, crude oil is up 13 percent, wheat has climbed by one-third, cotton has doubled, and copper has risen by more than 20 percent. Almost across the board, commodity prices are heading higher. To find out what’s behind the rise, whether it’s likely to continue oakley sale sunglasses, and a few strategies that corporate finance pros can use to contain their exposure to the price increases, I talked with Kevin Kerr http://goodcoachoutlet.weebly.com, founder of Kerr Trading International, a commodities trader and frequent commentator on all things commodity-related.
At least some of these factors are likely to be around for the longer term. The growing economies in many emerging markets are leading to greater numbers of people joining the middle class, Kerr says. “Their populations are getting used to a higher quality of life,” including consuming greater quantities of foodstuffs like meat and coffee, he says. “It’s not possible to put that genie back in the bottle.”
When it comes to commodities, conventional wisdom is that “the cure for high prices is high prices,” Kerr says. That is, eventually prices get so high that they’re no longer sustainable. Buyers begin looking for substitute products, leading to a drop in demand.
Another culprit is the ongoing weakness in the U.S. dollar. Kerr notes that when the dollar is weak, money tends to move to commodities. Along those lines, the “endless printing of dollars has driven money to gold and other quality metals,” Kerr says. “There’s a shift from paper [money] to hard assets.”
Several factors are driving the price jumps, Kerr says. Growth in demand, particularly from such emerging markets as China and India, is a big reason for the price jumps. For instance, China’s import of sugar is expected to rise by 50 percent between 2010 and 2011, according to this story in Agrimoney.com. Similarly oakley sale sunglasses, India’s use of oil is expected to grow by 100,000 barrels per day through 2011, the U.S. Energy Information Administration estimates.
Persistent worries about inflation also show no signs of abating, given the ongoing stimulus programs under way through the Fed, Kerr says. Commodity prices usually rise when inflation accelerates.
Strategies for navigating the rising prices.
Given the likelihood that rising commodity prices promise to be the norm for a while, what can corporate treasurers and CFOs do to protect their firms’ bottom lines? For starters, they shouldn’t look to the government for help, Kerr says. Unlike some other countries that are aggressively seeking partners – say, China investing in energy operations in South America – the U.S. isn’t. “It’s kind of amazing that we’re not taking more action,” Kerr says. Americans have enjoyed such low prices in a range of products – oil, food, apparel – for so long that we may have grown complacent.
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