While speculation on economic impacts, pricing fluctuations, supply and demand and hedging occurs daily with commodities, this article will delve into the bigger concern: Will commodities be around in the future and at what cost? As a simple primer, there are two basic types of commodities, hard and soft. Wikipedia looks at a commodity as a marketplace item provided to satisfy wants or needs. The easiest differentiator is hard commodities are mined, while soft commodities are farmed. Some examples of hard commodities include metals, oil, coal, copper, zinc and mercury. Examples of soft commodities are corn, wheat, sugar and cocoa beans. Sometimes, soft commodities are referred to as the 3 Fâs: food, fuel and fiber.
Why pose a question on the future of commodities when mining activities have increased, farmers markets are springing up everywhere and the shelves in the supermarket are fully stocked? Global population is expected to increase 11 percent by 2020 and 20 percent growth by 2030. Two hundred years ago, global population hit one billion. According to US Census Bureau data, it took another 118 years to double, hitting two billion in 1922. It took just 37 years to hit three billion, 15 years to hit four billion, 13 years to hit five billion and just 12 years to hit six billion. The dramatic increase in population sprawl reduces new farmland and drives up demand. The strain on natural resources is beginning to manifest itself in different ways.
China and India are increasing their consumption of commodities at a rate three times higher than that of the United States. Population is just one factor impacting commodities. Hedging and speculation within the economic sector is putting an intense demand on certain commodities. Soft commodities are prone to numerous factors outside of human control factors â weather, climate and spoilage to name a few. Soft commodities are at the mercy of marketplace pricing, with little to no ability to hold onto product and wait for more favorable pricing. As our climate continues to regulate, floods, typhoons, droughts and hurricanes ravage crops and supplies driving up prices, reducing already scarce resources.
On the hard side, commodities like coal and others have faced increased political pressures and have been under attack. Communities have put certain commodities squarely in their crosshairs and have worked to limit production through ballot measures or increased regulations. The EPA has been targeting carbon emissions, water and air quality standards among others. Millions are being targeted on a war against coal and energy production.
With population increasing and commodities become more and more scare, we are faced with the question of how to protect valuable resources and continue to produce essential commodities so necessary for day-to-day life. Crucial advancements and improvements in yield to offset less land available to farm and higher demand are essential. While the picture painted is bleak and has many in despair, there is good news out there.
Equipment advances and improvements in techniques have had a positive impact on yield. Creativity and experimentation within the commodities sector has led to innovation and new best practices. Science has created higher yield and more durable strands of soft commodities. Good ecological and social standards efficiently applied at scale are driving large-scale changes in production. Hybrid stains are proving to be resilient and withstanding some of the climate challenges.
The recent demand and consumption for healthy food, moving away from sugary snacks and treats is changing the landscape as well. It has certainly changed the demand and availability related to certain soft commodities.