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The buoyancy surrounding commodity prices across the globe has subsided considerably in the last few weeks. The slowdown is not limited to a few commodities—it is across the board and more widespread than earlier. The Reuters/Jefferies CRB index, which includes all major commodities traded in global exchanges, had slipped by 2.7%, its biggest fall since March 20, 2008, before recovering slightly in the past few days, aided primarily by the fall in the dollar and some recovery in crude oil prices. It has not been the normal market correction; it was a sell-off throughout. Corn futures for December delivery fell by almost 5% to $5.49 a bushel, its lowest since August 4, 2007. Soyabean for November 2008 delivery dropped 4.3% to $12.19 a bushel, its biggest fall since August 8, 2008—this was in addition to a 70% fall earlier. Major weakness was also evident in the metals space, with gold falling to below its long-term support price of $800 per ounce, while silver also dropped trailing gold prices. Most commodities have recovered marginally since last week’s fall, but the scare that this sell-off brought could have a long-lasting impact on market sentiment.
In India, the prices of most commodities also fell, tracking their global peers. Gold has dropped by 10% since July, silver almost 12%, nickel almost 14%, aluminium around 11.2% and, among agricultural commodities, crude palm oil fell 24% since July while refined soyaoil dropped around 13%. The fall brought about panic in the markets, with traders rushing to liquidate their position to minimise losses. But, was this panic justified or it was just that traders, who had grown used to high prices, could not bear the sight of prices crashing? Either way, it did reflect how short-lived any boom-or-bust cycle can be, raising questions about whether all players should be prepared to expect the adverse in a commodities boom cycle. Fortunately, government policies in India are usually unresponsive to such subtle changes and volatility, or else the mismanagement that we see today in agriculture would have been even worse. One hopes, though, that in due course, the government notices that commodity prices do not appear to be a monster any more and that it is, therefore, okay to relax some of the controls imposed at the height of the price panic.
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