Scraponomics Episode 116: 1980s Prices with 2016 Expenses
“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” — Sam Ewing, former baseball player for the Chicago White Sox and current professor
One of the biggest issues we’ve had to contend with during this commodity market crisis is the difference between commodity values versus what our expenses cost. Not just because commodity values have gone down while our expenses have stayed the same, but also because of commodity inflation…or rather, the lack of it.
You may already know that commodity values go up and down. The trouble, at least as far as scrap is concerned, is that their values haven’t risen at the same rate as inflation.
Now, on the one hand, if they did rise in the same way, that might make the scrap industry operate in a weird way. Instead of $30 - $200 per Gross Ton for scrap iron, we might see scrap being traded in the thousands per Gross Ton.
However, because commodity values haven’t risen at the same rate as inflation, we’re now in an even stranger situation where we’re buying and selling scrap at 1980s prices, but we still have 2016 expenses.
So when the market crashes like it has, you can be busier than all get-out, and yet still not make a profit.
My dad has been through about four cycles like this. He always says, You have to hold on in the bad times in order to enjoy the good times. He’s a smart guy, so I’ll take his word for it.
But what do you think?
Should commodity prices rise at the same rate as inflation? Should they not? Do you have experience in this area? I’d love to hear your thoughts!
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