Commodity Prices Are at Risk — Again

Earlier this week, Michael Lamoureux (AKA the Doctor) chided me for recommending gold as an investment. The context was that I suggested something like sticking some bullion under the mattress along with a bunch of canned goods and ammunition just in case the *&$^ really hit the proverbial fan. I said this before the midweek meltdown and before gold prices spiked more than 10%. Now, I'm not an investment or commodity strategist -- nor do I think there was anything prescient in my suggestion -- but I do believe there are some lessons learned from what was really a joking and sarcastic recommendation. First, don’t trust a blogger from Canada (just kidding – Michael and Jon Hansen over at Procurement Insights have some great things to say. I strongly recommend that you bookmark their sites). Second, and I am being serious here, it's essential to think long and hard about the role of commodities and commodity prices in your business (even when it's your suppliers who are using them) -- especially in times when financial institutions and individuals are fleeing traditional securities in favor of alternative investments. Just as prices spiked earlier this year and last, they will spike again if irrational enthusiasm permeates the commodities world. This should make you think very seriously about investing to insure continuity of supply and locking in prices through hedging even at the expense of potentially paying more vs. the spot market as an insurance policy against price escalation. For further reading, here's a good Financial Times piece on the subject of food ingredients.

- Jason Busch

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