Even when the world is at its most turbulent, commodities provide a safe haven for futures traders. Commodities are inelastic goods. In economics, elasticity quantifies how price changes affect supply and demand.

Elastic goods exhibit a high correlation between price and demand. When the price of the good goes up, demand decreases. Elastic goods are generally less-essential goods, meaning that you can live without them or at least use less of them or substitute a less expensive option. The dance between price and demand can be complex. For example, when the cost of milk rises, people buy less milk and fewer milk products. Some people will stop buying milk altogether until the price comes back down. Families with young children who still need milk will serve their children less milk or milk with a lower fat content and, therefore, cheaper price tag. They may substitute enriched soy milk or calcium supplements and calcium-fortified breads and cereals to ensure their children get a full dose of bone-building calcium. Sales on cheese, ice cream and other dairy products will plummet in concert with how necessary they are perceived to be. Ice cream is considered a luxury so when ice cream prices rise, sales fall. (more…)

In a Windy City a long time ago . . .

Though some suspect the ancient Phoenicians and Greeks may have dabbled in futures trading, the modern futures market was born in Chicago with the establishment of the Chicago Board of Trade in 1848. Know as the hog butcher to the world, Chicago was also the commercial hub connecting Midwestern plains farmers with East Coast food merchants. Telegraph lines, railroads and shipping all passed through Chicago. It was to Chicago that Midwestern farmers came in the 1840s to sell the wheat that fed the world. (more…)