Ascot Races: Gambling on Commodities

Whether you are purchasing food, machinery or stationary, there are challenging times ahead for the both the public and the private public sector. These have been made all the more difficult due to speculation in certain key commodities and economic uncertainty. For this reason there is a lot of speculative activity in the markets.

Speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum. I thought I would try some commodity speculation at the Ascot Races, UK this weekend. I chose my horses according to their food-related names!

Race 1 -- Nehaam:
The closest I could get to a commodity was Nehaam, nearly Ham.

Race 2 -- Silverside:
A nice American horse in sizzling form.

Race 3 -- Bible Belt:
An Irish horse ridden by F. M. Berry

Race 4 -- A Change of Tactics:
I decided to bet on every single horse part from the favourite.

Ham
The average US pork price has been hitting very high levels. Amid strong exports and tight supplies, the swine heard has remained constant and high feed prices have not helped. Recent drops in the price of feed will hopefully help change the upward trends.

Silverside
In Germany, total cattle numbers fell 2% year-on-year. Total imports to Russia, the world's second largest importer of beef, rose just over 20% year-on-year in the first half of 2011. The EU benefited most from this sharp rise in demand and shipments to Russia jumped in excess of 140% during this period. Shipments from Brazil only saw a marginal increase.

Overall results
A resounding loss with zero success, for those who are interested -- the favourite in race 4 was unfortunately a wonder horse called Frankel -- he demolished the field to retain his 100% record for the season!

The world economy will certainly have an effect on the price of the commodities and finished products that we are purchasing, however, problems can occur when speculators enter the market. Again, it's down to understanding the supply chain, if we understand the costs that affect our suppliers and we can understand the commodity that we are purchasing, we can get a step closer to seeing the real truth behind a market. Even with this knowledge we can't stop speculation, but we are able to visualize what the longer-term future may hold and we can change our commodity strategy accordingly. Supply and demand will always balance out in the end (I checked to see if we have the price of horse meat in our system, but sadly not).

- Nick Peksa, Mintec Ltd.

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