Fake (Commodities) News: Investigate, Investigate, Investigate

Andrey Popov/Adobe Stock

Spend Matters welcomes this guest post from Nick Peksa, market analyst at Mintec.

In the press we have heard a lot about fake news. This is nothing new; this has been around in the form of market rumors for many years.

As we all know by now, the commodity and raw materials market can be very sensitive to speculation — one bad report from an unknown source can cause major price upheavals in a market. In order to verify or discount rumors, they need to be approached in a logical manner, i.e., ask or research all of the questions that might influence a market. For example:

  • What is the current world supply and demand for the market?
  • Who are the main producing countries of this commodity?
  • Do I have an alternative source for this product?
  • Is the country I purchase from a net importer or exporter?
  • How does weather truly affect the crop?

I thought I would share a couple of my favorite market rumors.

Graph 1: Coconut Oil

When: Prices rocketed in mid-1999 almost overnight.

Why: A volcano erupted spewing ash

Claims: Devastation and limitation of supply

Investigate: Look at a map, the nearest growing region for coconut trees is around 1,000 kilometers away and the country’s infrastructure has not been affected.

Graph 2: Cocoa Beans

When: In 2002–2004 prices climbed on the back of news stories

Why: Constant rumors of civil war in some of the world’s major producers

Claims: People are stealing cocoa

Investigate: As a major contributor to a country’s GDP, the cocoa was still being harvested, so the civil war is not that widespread.

How do people steal cocoa if the infrastructure of Africa is based around single-track roads with checkpoints? This would need to be crime at a governmental level. You would need a large fleet of container trucks for a considerable period of time to even dent the supply.

Graph 3: Crude Oil

When: Now

Why: Crude oil prices have risen to a new record high

Claims: In 2017, world oil demand is expected to grow and predictions are that oil prices will rise in the next five years

Investigate: I will leave this one with you…

To understand a market, you have to know the market. Rumors are created to increase profit, but facts are there to disprove rumors. Don’t just use market prices: explore the fundamentals behind a market.

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