How to deflate a bowling ball?
June 01, 2020
Author: Guy Soreq
In the world of animal feed additives, we are used to the seesaw of prices. Prices go up, and what goes up must eventually come down. Time and again we have come to expect this. Much like market bubbles, these extreme fluctuations seem inevitable. Every few years we see a bubble, from the infamous first “tulipmania” bubble that struck 17th century Holland, to the dot com bubble of the early 2000s, to the United States housing bubble. The rise of these bubbles, as well as the rapid spikes in feed prices, have one big thing in common: they are propagated by a lack of visibility into the market. They are the result of imperfect information, especially when it comes to understanding real demand.
A lesser known bubble occurred when bowling related stock prices took off during the 1950′s and 1960′s. At the time, industry analysts believed that every American, on average, would go bowling about two hours per week. Investors put $2 Billion of capital into the bowling business. In 1961 the stock of the Brunswick Corporation, a 100 year old manufacturing corporation making bowling balls, was 1,590% higher than it was at the end of 1957. By the year 1963 there were 11,000 bowling alleys in America, nearly double from 6,600 in 1955. That same year, it all came crashing down as bowling stocks fell 80% from their all-time high. Industry analysts were wrong in their forecast of demand.
So how do these bubbles happen? Buyers place so much demand on an asset that prices no longer follow the known supply and demand curves. Once enough attention is given to a specific product, this gap grows even further, and prices shoot toward the sky. Market bubbles grow at such a fast pace that they elicit a sense of #FOMO, when you feel that if only you had entered the market yesterday you would already be in the money today. However, since the rise in price represents a set of factors disconnected from the market, the bubble eventually pops. And when this happens, markets crash and factories are closed, from those making bowling balls to those making feed additives.
Sophisticated speculators may benefit in these times, but industry rarely does. When it comes to feed additives, the consequence of poor information can be disastrous. Shuttered bowling alleys are certainly problematic, but without the right materials our animals will perish. Understanding the demand side in real-time is critical to ensuring the consistent supply of animal feed in a healthy balanced market. Forecasts based on derivatives aren’t enough, especially when we have the ability to measure demand directly and make informed decisions accordingly. Glowlit enables greater transparency in the market toward precisely this aim. Together we have an opportunity to deflate the bubbles and smooth over the volatility.