More commodities below zero?
After crude oil made headlines worldwide last week for trading below zero, many investors began to wonder if other commodities could become worthless.
To market historians, oil is not an aberration; many other markets have plunged below zero as well and serve as a warning that negative prices can come again.
Rotten food prices
As part of the coronavirus supply-chain disruptions, some dairy farmers are seeing demand collapse as processors are overwhelmed and unable to handle additional fresh milk supply. As cows continue to produce milk daily, farmers can be overrun with supply, forcing them to dump their milk on the ground, a sign that it has lost all value in the short run.
Similarly, as slaughterhouses have closed or reduced capacity due to coronavirus outbreaks, poultry and hog farmers have nowhere to take animals and are culling the animals they cannot sell.
One of the most famous examples of worthless commodities comes from 1956, when traders hoarded onions and then flooded the market with supply, driving prices for a 50-pound bag full of onions down to 10 cents per bag, less than the empty bag was worth.
Energy markets zapped
Energy markets have been prone to negative prices as well, as storing these products presents logistical issues.
Oil and natural gas producers have seen effective negative prices when pipelines or storage is full. Additionally, electricity prices in California can go negative when nuclear power and renewable energy flood the market, driving prices so low that producers pay end users to use up excess supply.
Get paid to borrow money?
Negative interest rates, heretofore thought impossible, have become commonplace in Japan, Northern Europe, and finally for short-term U.S. lending.
This week, for example, the European Central Bank announced they would loan money to banks at a negative 1%, paying banks to borrow money. In turn, some banks are now lending at negative rates, paying consumers to take out a loan!