Monday, April 3, 2017
What Commodities Tell Us about Our Economic Future
Let us consider lumber as an example. When lumber sales increase, it means that companies are purchasing this material to make products that lead to profits. They are expecting an increase in housing sales and reconstruction. As the orders rise, the market will seek to gain access to more lumber to service their customers.
Orders will increase and there will be more demand on lumber as large scale companies secure this wood and filter it down their supply chain. Raw lumber becomes, wood, which is sold to retailers who sell that to contractors. The end product is the house.
The same can be said for cotton. If cotton commodity trading increases there is likely to be an increase in cottons, linens, and other items that use this material. The purchasing behavior happens because of market demand and we can't ignore its purpose.
That doesn't mean it will tell you specifically what will increase but it will point you in the right direction. At that point you will need to look at other economic data to try and discover which exact items are increasing in demand. You will need to know who is making the purchases and who they supply. Companies buy large quantities of materials and still cater to specific purchasers so understanding their buyers is important.