At the beginning of the summer, doom and gloom reports that the US needed to brace itself for a prolonged chain of price increases, oil shortages, and other various economic hardships were on the frontage of every business section of every newspaper. This week the "commodity bubble" (whose very existence was as debated as the ethanol issue) was declared "burst" by Lehman Brothers analysts. The Los Angeles Times reports:
They concluded that oil’s dive over the last five weeks foreshadowed persistent softness in prices for at least the next year. "Is the bubble now over?" wrote Edward Morse, Lehman's lead analyst. "We believe almost certainly."This decline in prices couldn't have come at a better time; on Thursday the EPA rejected Texas Governor Rick Perry's request to cut the ethanol mandate. No one was really paying attention to the news- with oil prices falling and a stronger dollar, Marketwatch reported that corn prices fell again to the lowest closing level since February 1st.
What other factors are causing this relief in commodity prices, and what could make them increase again? The Star Online offered up a few ideas:
Analysts say the biggest factor is the ailing U.S. economy. If growth picks up, unemployment falls and consumers start spending again, demand for energy, building materials and other goods will increase, straining world supplies again."But we're not expecting that to happen for at least a few quarters,'' said Cordier.
China could also be a catalyst. The country has restricted driving and closed factories to reduce pollution during this month's Beijing Olympics, and some people expect a bump in demand for gasoline, coal and other material once the Games finish.
Speaking of the Olympics, the Olympic Committee in Beijing ordered a decrease on the cost of coffee for journalists covering the games:
At the coffee bar inside the main press center, the price of a double espresso tumbled from RMB 23 (almost $3.40) to RMB 12 ($1.76) overnight.China Daily also reported on the massive undertaking of feeding over 60,000 people a day in the Olympic Village. The dining hall, which is open 24 hours a day, goes through over three tons of rice and 4,000 liters of cooking oil every day!
Further Reading:
Huston Chronicle on Experts divided on which way prices will go next.
MSNBC on how rising prices and low paychecks are worrying consumers.
The Wall Street Journal on Oil down, Stocks up- but don't bet on it!
The Dallas Morning News on the EPA's rejection of Senator Perry's request to decrease ethanol production.
Crave on the use of RDIF to manage food at the Olympics.
