Archive for June, 2016

Hedging commodities to protect market prices

Gin & Tonic

It’s been a devastating year for those dealing in citrus fruits. Unusually high temperatures during the flowering period in the key growing regions of Valencia and Malaga has affected pollination of crops and stunted flower growth in Spain. At the same time, an outbreak of citrus black spot on the Eastern Cape has delayed the picking season in South Africa. With crop yields falling in both regions, supply has shifted to Argentina, but torrential rains during the harvesting period there have led to severe disruptions and delayed seasonal shipping to European markets.

Together, it has been the perfect storm for citrus fruits, with crop yields down by more than 35 percent, their highest mark in eight years. Consequently, supermarkets in Europe have passed along their higher costs at the till, increasing consumer prices of lemons 25 percent from last year.[1]dailymail.co.uk/news/article-3614261/Lemon-shortage-forces-price-citrus-fruit-Britain.html Similarly, lime prices are skyrocketing as Mexico has been unable to meet excess demand and Brazilian traders have responded by placing a stranglehold over market prices, charging up to £2 per kg of limes.[2]telegraph.co.uk/news/2016/05/27/global-lemon-squeeze-causes-supermarket-prices-to-soar/

Lemons and limes may not seem all that interesting as one reaches for an afternoon snack, save for those suffering their way through the infamous Master Cleanse, but in fact they are used in large quantities on a daily basis by restaurants and bars in cocktails, sauces, and marinades. The current shortage has meant that those restaurateurs and bar owners buying on the open market will either be unable to source their requirements of citrus products, or pay dearly for the privilege.

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How Businesses are Influencing the Relationship between the Weather and Consumer Demand

storm

When it comes to weather affecting consumer behaviour and purchase decisions, it has long been known that weather has an impact on consumer demand. The food we eat, clothes we wear, and how, where and how much we buy has all been scientifically proven to be influenced by the weather, it being second only to the economy in being the biggest single influencer on consumer behaviour.

Indeed, every day people make purchasing decisions based on the weather, from buying ice cream, sandals and swimsuits in the summer, hot soups and snow tyres in the winter, and less of beer and bottled water as autumn approaches. In turn, the seasonal cycle of weather purchases are accounted for by supply chain managers in stocking store rooms and giving discounts to clear out product before the seasonal event- or the season itself- leaves stockpiles of unsellable wares in their hands.

But what if everything we have known to be true about how the weather affects consumer behaviour and our ability to control this relationship was wrong? What if the seemingly uni-directional, unmanipulatable relationship between the weather and consumer behaviour was now being found to be being turned on its head? Specifically, what if a business could influence the relationship between the weather and consumers to its advantage?

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