Robert Kiyosaki - Rich Dad, Poor Dad
ROLE OF INVENTORY MANAGER
To really get into the swing of what moves the markets, put yourself behind the desk of someone responsible for managing an inventory of a specific commodity, soybeans for example. Begin at harvest time when the bean supply is plentiful. One of the first insights an inventory manager needs is how this commodity reacts to changes in supply and demand. The principle of elasticity can be defined as a characteristic of commodities which describes the interaction of the supply of, demand for, and price of a commodity. A commodity is said to be elastic in demand when a price change creates an increase or decrease in consumption. It is said to be elastic in supply when a change in price creates a change in the production of the commodity. Inelasticity of supply or demand exists when either supply or demand is relatively unresponsive to changes in price.
Most food and feed commodities respond to changes in price. If soybean prices shoot up, users look for a substitute or ration their usage of soybeans. Livestock feeders use other sources of protein. Vegetable oil producers and users have a wide variety of substitutes available such as sunflower seeds, corn, palm, and coconuts.
The professional inventory manager knows soybean prices are elastic. The price stretches and contracts (rises and falls) in relationship to supply and demand. It is known that supplies are usually plentiful and prices are relatively low at harvest because many farmers do not have or cannot afford storage.
Studying the season price information indicates cash soybeans can be expected to bottom approximately three out of four times during the October-November period each year. Therefore, the inventory manager looks at harvest as a buying opportunity. Then the question becomes how much to buy or whether to wait and buy as the beans can be used. The next step is to make an evaluation of the overall supply and demand (also known as fundamental) of the market. In late fall, the South American crop is planted. How many hectares? What yields are expected? How aggressively are the governments of Brazil and Argentina promoting production and exportation?
Jim Cramers Real Money Sane Investing In An Insane World Cramer
