Often times, commodity traders will exaggerate media hype about negative weather that can destroy crops or cause poor yields that year. Which means there will be fewer crops available for sale and therefore supply and demand dictate prices to be higher. Therefore, people who buy these products that have an important need are willing to pay more in order not to run out of them. Many people get in the way and speculate, believing that there could be a shortage in, therefore next week the price will be higher, or it may even be higher in ten minutes to an hour. So they buy the contract and sell it, when someone else believes it will go even higher in the near future. Finally, the person who is actually going to use the products in production (in the case of agricultural products) ends up buying what he needs.
Some of the speculators who bet on the side make incredible money in a very short time. And some lose so much money that they cry, jump off buildings, or never recover. How does this affect the consumer? Some would say not much. Others would say that it artificially raises the price at a cost relative to any sense of reality. And that the final price of the manufacturers of Gray Pupon in France is higher than if they bought the mustard seed from the corporate farmer himself. However, that is how things work.
McDonald’s buys its potatoes from corporate farmers in Idaho, not the commodity market; therefore, you limit your exposure to the price increase that might have occurred from using the commodity exchange to source those potatoes. Starbucks is doing the same thing, but instead of having companies and coffee beans, they are all internal. If Starbucks owns the companies where they grow the coffee, then they could have a conflict of interest for their shareholders. Because they would be dictating the price of coffee in the companies sold to Starbucks. If they paid a little more than normal for those coffee beans, so that the coffee plantation can expand with better production facilities and improve, then Starbucks funneled money to those partnerships, which should have paid dividends, shown as earnings or retained earnings. . By doing so, its share price would rise and shareholders would be better served in the short term. There is a lot more involved before that food or drink even reaches your table. Commodities are a very important behind-the-scenes part of our civilization.
