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I mean, that’s a straight up cartel. There’s nothing surprising about that. But the OP is confused about their comment about commodities in general. They are l

I mean, that’s a straight up cartel. There’s nothing surprising about that. But the OP is confused about their comment about commodities in general. They are largely based on supply and demand, but most companies need to predict supply and demand months and years in advance because converting raw material into a sale to the end user is a multi month to multi year process, so a natural result is that the prices are based on speculation of supply and demand, months to years in advance.

mr_toad 3y ago
> the prices are based on speculation of supply and demand, months to years in advance. There’s also an element of speculation on speculation driving short term trends.
tsimionescu 3y ago
> They are largely based on supply and demand, but most companies need to predict supply and demand months and years in advance because converting raw material into a sale to the end user is a multi month to multi year process, so a natural result is that the prices are based on speculation of supply and demand, months to years in advance. But that practically means they are based on speculation about possible future supply and demand, and we are more or less taking it on faith that that speculation is correlated to actual supply and demand.
- avianlyric 3y ago
  > But that practically means they are based on speculation about possible future supply and demand, and we are more or less taking it on faith that that speculation is correlated to actual supply and demand. This statement almost seems tautological. Of course prices are based on speculation about possible supply and demand, nobody has a crystal ball that can tell them “actual” supply and demand. In a competitive and liquid market, you expect prices to rapidly approach “optimal”, because otherwise there’s an opportunity there for someone make money out of the market inefficiency, buy correctly predicting when supply is high, and buying, then selling when supply is low. Which is exactly what future etc do, except without the need to actually move the physical commodity around.
  - tsimionescu 3y ago
    > Of course prices are based on speculation about possible supply and demand, nobody has a crystal ball that can tell them “actual” supply and demand. Exactly, no one has such a crystal ball. And this actually generally applies not just to future supply and demand, but even to the past: it's actually impossible to measure supply and demand across any significant industry, to check whether prices matched it or not. And yet, economists and economical theory enthusiasts talk about the "law of supply and demand" as if it's some scientific observation, and not just a simplistic model that seems intuitive. > In a competitive and liquid market, you expect prices to rapidly approach “optimal”, because otherwise there’s an opportunity there for someone make money out of the market inefficiency You might expect that if you believe in the law of supply and demand, but as we were discussing, that is not how prices are actually formed, and anyone betting based on observed supply and demand (to the extent that it is actually possible to observe them) will be beat in general by others who are betting based on current speculation, which is how prices are actually formed. For example, if you are betting that gain prices will increase in the winter because that's what you think they did every year, and ignore some prominent pundit predicting that they will decrease this year, you may well lose the bet if everyone else believes the pundit. And that will be true regardless of whether grain will be in low supply or not.
    - signatoremo 3y ago
      > you may well lose the bet if everyone else believes the pundit Can you give a real life example of when a pundit giving a predict against the actual supply that had everyone buy-in? Says, oil price goes down even when demand is hot?
      - PinkRidingHood 3y ago
        An inverse example would be any bubble, for example the housing bubble that happened over a decade ago. Prediction of house prices going up eventually reached a point where house prices were going up, despite low "actual demand" (of course, if you count "demand for investment", then prices are absolutely a measure of that).
      - 3y ago

mr_toad 3y ago

> the prices are based on speculation of supply and demand, months to years in advance. There’s also an element of speculation on speculation driving short term trends.

tsimionescu 3y ago

> They are largely based on supply and demand, but most companies need to predict supply and demand months and years in advance because converting raw material into a sale to the end user is a multi month to multi year process, so a natural result is that the prices are based on speculation of supply and demand, months to years in advance. But that practically means they are based on speculation about possible future supply and demand, and we are more or less taking it on faith that that speculation is correlated to actual supply and demand.

avianlyric 3y ago
> But that practically means they are based on speculation about possible future supply and demand, and we are more or less taking it on faith that that speculation is correlated to actual supply and demand. This statement almost seems tautological. Of course prices are based on speculation about possible supply and demand, nobody has a crystal ball that can tell them “actual” supply and demand. In a competitive and liquid market, you expect prices to rapidly approach “optimal”, because otherwise there’s an opportunity there for someone make money out of the market inefficiency, buy correctly predicting when supply is high, and buying, then selling when supply is low. Which is exactly what future etc do, except without the need to actually move the physical commodity around.
- tsimionescu 3y ago
  > Of course prices are based on speculation about possible supply and demand, nobody has a crystal ball that can tell them “actual” supply and demand. Exactly, no one has such a crystal ball. And this actually generally applies not just to future supply and demand, but even to the past: it's actually impossible to measure supply and demand across any significant industry, to check whether prices matched it or not. And yet, economists and economical theory enthusiasts talk about the "law of supply and demand" as if it's some scientific observation, and not just a simplistic model that seems intuitive. > In a competitive and liquid market, you expect prices to rapidly approach “optimal”, because otherwise there’s an opportunity there for someone make money out of the market inefficiency You might expect that if you believe in the law of supply and demand, but as we were discussing, that is not how prices are actually formed, and anyone betting based on observed supply and demand (to the extent that it is actually possible to observe them) will be beat in general by others who are betting based on current speculation, which is how prices are actually formed. For example, if you are betting that gain prices will increase in the winter because that's what you think they did every year, and ignore some prominent pundit predicting that they will decrease this year, you may well lose the bet if everyone else believes the pundit. And that will be true regardless of whether grain will be in low supply or not.
  - signatoremo 3y ago
    > you may well lose the bet if everyone else believes the pundit Can you give a real life example of when a pundit giving a predict against the actual supply that had everyone buy-in? Says, oil price goes down even when demand is hot?
    - PinkRidingHood 3y ago
      An inverse example would be any bubble, for example the housing bubble that happened over a decade ago. Prediction of house prices going up eventually reached a point where house prices were going up, despite low "actual demand" (of course, if you count "demand for investment", then prices are absolutely a measure of that).
    - 3y ago