There’s an old saying in many commodity complexes … “What will drive high prices down? High Prices … What will drive low prices up? Low prices” – the basic gist of this is that when prices get too high, demand slows and when prices are low demand picks up.
We first heard this saying in the oil patch but it fits across almost any commodity or other variable pricing asset.
Spot Futures Lumber Prices – Now thats a Clearing Price
For those of you that have not heard there are supply shortages in all parts of the economy. On a funny personal note …recently I had my golf clubs re-gripped and there were only a few options to have a complete set of the same grip ….all the other were back ordered to mid to late 2022. Part of the increased prices of used automobiles is a reflection of new automobiles being unable to be complete by shortage of semis.
We thought you would find this interesting and a great example of higher prices slowing demand. At one point in the most recent quarter, several publicly traded companies were completely shutting down certain aspects of their operations due to extreme high prices.
Trailing Three Year Spot Prices
Trailing Three Year Spot with Percentage Change – Up 530% Followed By Down 70%
Certainly tons of factors going into this move. BUT, if you are wondering how higher prices can in your commodity of choice (Bread, Wheat, Lumber, Semi’s….) look like when it eventually clears…. Here is a playbook!
Have a Great “Commodity Price Clearing” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth