# Prices and cycles: Key terms, quiz and sources Source page: https://www.materialinsights.org/learn/commodities/prices-and-cycles/review/ [Understanding Commodities](https://www.materialinsights.org/learn/commodities/) / [Module 5: Prices and cycles](https://www.materialinsights.org/learn/commodities/prices-and-cycles/) Wrap-up ## Prices and cycles: review ### Key terms **Cash-cost curve** : Producers' capacity ranked by variable cost from lowest to highest; it approximates the short-run supply curve. **Long-run equilibrium price** : The full cost, including capital, of the marginal new project; a level prices are pulled towards but never actually trade at. **Price elasticity of demand** : The percentage change in quantity demanded for a 1% change in price; low for most raw materials in the short run. **Benchmark price** : A price agreed or published for one reference deal or grade that others adopt for their own contracts, with adjustments. **Price assessment** : A reference price published by a price reporting agency from confidential surveys of private deals. **Producer price** : A take-it-or-leave-it price announced by a small group of sellers; it changes slowly and can hide rationing or rebates. **Transfer price** : The price at which a commodity moves between units of the same integrated firm; it may reflect tax more than market value. **Buffer stock** : A stock bought and sold by a public agency to hold prices within a band, as the International Tin Council did until 1985. **Theory of storage** : The explanation of spot-forward price differences by the costs and benefits of holding inventories. **Convenience yield** : The benefit of holding the physical commodity rather than a futures contract, net of storage cost; it rises as stocks fall. **Cost of carry** : Interest plus storage, insurance and deterioration costs of holding a commodity until a future date. **Contango** : A forward curve sloping upward, with futures above spot; typical of ample stocks and capped by the cost of carry. **Backwardation** : A forward curve sloping downward, with spot above futures; a sign of scarce stocks, with no arbitrage ceiling. **Samuelson effect** : The tendency of near-dated futures to be more volatile than distant ones. **Normal backwardation** : Keynes's theory that futures prices lie below expected spot prices because hedgers pay speculators to bear risk. **Roll yield** : The gain or loss from replacing an expiring futures contract with a later one; positive in backwardation, negative in contango. **Real price** : A nominal price divided by an index of other prices; on the tiles, 2010 US dollars deflated by the MUV index. **Prebisch-Singer hypothesis** : The claim that commodity prices tend to fall over time relative to manufactures. **Hotelling rule** : The theoretical result that the scarcity rent of an exhaustible resource rises at the rate of interest under strict assumptions. **Super-cycle** : A claimed long price cycle with an upswing of 10 to 35 years, driven by the industrialisation of a large economy. ### Try it in the table - Open [Tin](https://www.materialinsights.org/commodities/tin/) and switch to the real price chart. Find 1985 and 1986, then find the year the real price first regained its 1985 level. What does that gap tell you about the cost of defending a price above equilibrium? - Open [Natural gas](https://www.materialinsights.org/energy/natural_gas/), Nitrogen and [Potash](https://www.materialinsights.org/commodities/potash/). Locate each peak in 2022 on the monthly chart and note which came first. [Urea](https://www.materialinsights.org/chemicals/urea/) and potassium chloride peaked in April, gas in August: what besides gas costs must have been driving fertiliser prices in early 2022? - Open [Iron ore](https://www.materialinsights.org/commodities/iron_ore/) and Aluminum and compare their real charts from 2003 to 2015. Chinese demand for both surged. Use the production shares on each tile to explain why only one price exploded. - Open [Crude oil](https://www.materialinsights.org/energy/crude_oil/). Read the five-year change, then look at the monthly chart and decide whether the start month flatters or understates the move. Do the same on [Potash](https://www.materialinsights.org/commodities/potash/), where the five-year change is -50%. - Open [Copper](https://www.materialinsights.org/commodities/copper/) and [Nickel](https://www.materialinsights.org/commodities/nickel/). Both peaked in the 2000s boom. Using Humphreys' eight-to-ten-year [lead](https://www.materialinsights.org/commodities/lead/) time for large mines, explain why high prices lasted years rather than months, and find on the Copper tile when the real price first beat its 2011 level. - Open [Cocoa](https://www.materialinsights.org/commodities/cocoa/) and [Coffee](https://www.materialinsights.org/commodities/coffee/) and compare their real charts over the whole period since 1960 with the recent spikes. Erten and Ocampo found tropical agriculture had the steepest long-run fall. Do the recent highs overturn that trend, or sit on top of it? ### Final quiz In Radetzki and Wårell's example, three downstream stages each hold stocks equal to half a period's sales. Final demand rises 5%. Roughly how much does demand for the raw material rise? Each stage buys more for its higher sales and to top up its stocks, so 5% becomes 7.5%, then 11.25%, then 16.9% at the raw-material supplier. With interest at 4% and storage at 3% a year, and no convenience benefit, what is the most a 12-month futures price can exceed spot by for long? Above the cost of carry, traders buy spot, store it and sell forward until the gap returns to about 7%. Humphreys reports that in May 2006 the spread between spot copper and the 27-month price exceeded $2,000 a tonne. What did that signal? Spot far above forward is backwardation, the market paying heavily for metal now rather than later because stocks were very low. Which statement about futures prices best reflects Geman's view? The two components cannot be separated in advance, and normal backwardation is not a general rule. What were the non-fuel super-cycles identified by Erten and Ocampo? Each lasted 30 to 40 years, peaking in 1917, 1951 and 1973; the 1949, 1973 and 2004 dates are Radetzki and Wårell's shorter booms. Why do Radetzki and Wårell doubt that the 2000s boom was a super-cycle? They see an extended investment cycle: once lagging capacity, such as new iron ore mines, comes on stream, prices fall, which they date to about 2015. Why did Brent's monthly average for April 2020 show $23.3 a barrel when the US benchmark briefly traded below zero that month? The extreme occurred in WTI futures delivered at Cushing, Oklahoma, as storage ran out. A monthly average of the North Sea benchmark cannot show a few hours of panic in another market. Under Hotelling's assumptions the scarcity rent of a mineral rises at the rate of interest. Why does Tilton think this has little practical bite? Studies find user costs very small for resources lasting decades, and examples like Swedish iron ore, British coal and Chilean guano show that deposits held back for later can simply lose their value. [Next module: How commodities trade →](https://www.materialinsights.org/learn/commodities/how-commodities-trade/) ### Sources for this module - Radetzki, M. & Wårell, L. (2021). A Handbook of Primary Commodities in the Global Economy, 3rd ed. Cambridge University Press. · pdf pp. 31, 102-140, 143-157, 162-170, 275-276 - Tilton, J. E. & Guzmán, J. I. (2016). Mineral Economics and Policy. RFF Press / Routledge. · pdf pp. 95-102, 108-124, 223, 229-231 - Tilton, J. E. (2003). On Borrowed Time? Assessing the Threat of Mineral Depletion. Resources for the Future. · pdf pp. 24-27, 49-66 - Geman, H. (2005). Commodities and Commodity Derivatives: Modelling and Pricing for Agriculturals, Metals and Energy. Wiley. · pdf pp. 35-51, 184-198, 224-226 - Erten, B. & Ocampo, J. A. (2012). Super-cycles of commodity prices since the mid-nineteenth century. UN DESA Working Paper No. 110. [web ↗](https://www.un.org/en/development/desa/papers/2012/wp110_2012.pdf) · pdf pp. 3-12, 24-26 - Humphreys, D. (2015). The Remaking of the Mining Industry. Palgrave Macmillan. · pdf pp. 30-35, 101-126, 145-150, 220-222 - Yergin, D. (1991). The Prize: The Epic Quest for Oil, Money, and Power. Simon & Schuster. · pdf pp. 1046, 1063-1064, 1080-1081, 1181-1187, 1286-1291 - Blas, J. & Farchy, J. (2021). The World for Sale: Money, Power and the Traders Who Barter the Earth's Resources. Random House Business. · pdf pp. 20, 42-43, 232-236, 309-311 - Conway, E. (2023). Material World: A Substantial Story of Our Past and Future. W. H. Allen. · pdf pp. 23, 140, 212-213 - US Geological Survey (2026). Mineral Commodity Summaries 2026. [web ↗](https://pubs.usgs.gov/publication/mcs2026) · USGS Mineral Commodity Summaries 2026, Nitrogen (Fixed)-Ammonia; Potash - World Bank Commodity Price Data (Pink Sheet), October 2026 release, as shown on the tiles. [web ↗](https://www.worldbank.org/en/research/commodity-markets) · monthly nominal series since 2000; annual real series since 1960 (2010 US$, MUV deflator) ## Other sections - [Module overview](https://www.materialinsights.org/learn/commodities/prices-and-cycles/index.md) - [How a commodity price is made](https://www.materialinsights.org/learn/commodities/prices-and-cycles/p1/index.md) - [Why commodity prices swing so hard](https://www.materialinsights.org/learn/commodities/prices-and-cycles/p2/index.md) - [Storage, convenience yield and the forward curve](https://www.materialinsights.org/learn/commodities/prices-and-cycles/p3/index.md) - [Real prices and the long-run trend](https://www.materialinsights.org/learn/commodities/prices-and-cycles/p4/index.md) - [Booms, super-cycles, money and the dollar](https://www.materialinsights.org/learn/commodities/prices-and-cycles/p5/index.md)