Commodity Price Cycles

Nov 2019

Cycles for commodity prices are relatively well understood:  When commodity prices are “about right,” it is not unusual for enterprising suppliers to boost their production, since profits are available at prevailing prices. However, since the demand for many commodities is typically relatively stable compared to supply, higher production/supply usually drives prices lower. Lower prices cause suppliers to cut back on production, thus reducing supply. Lower supply leads to higher prices—and the cycle continues.