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In the exercise I mentioned at the beginning of this column, I have had the opportunity to read many graduate-level research papers attempting to quantify supply-demand and pricing relationships. They are full of integral functions and matrices cross products. On the surface, they are very impressive. I am a skeptic as to their legitimacy. It has been proven through many studies that open trading acts like one giant organism and its behavior is somewhat predictable. Closed trading, on the other hand, does not provide this “one organism” type of behavioral predictability. About the only thing we can say for sure is a qualitative, “there is a link between supply, demand and prices.” Any attempts to quantify this bit of narrative are wanting for specificity and purport accuracy not attainable as long as deals are done in secret.

Why is there not more open trading? I think there are two reasons. First, experts have told me in the past that our markets are just too small to attract the commodity trading organizations. Yes, corn, soybeans and pork bellies are much, much bigger markets than pulp and paper. Fortunately electronic trading is making it more economical to operate in smaller markets like ours.

The second reason, really a combination of two reasons, is tradition and the belief that one is getting a better deal with the closed system than with an open system. Tradition is understandable—once a way of doing business is established it is very, very difficult to change it. The “I get a better deal in a closed system” reason is a bit laughable, however. For if everyone that operates in a specific grade, like the wastepaper grade of OCC in the example above, thinks they are getting the best deal possible, buying or selling, it is (as my old math teacher used to say) intuitively obvious that this cannot be so.

I have a real time example of the entrenched habits of buyers and sellers. Hopefully you will see this for what it is: an example, not an advertisement. We operate a website here at Nip Impressions® and PaperMoney® called www.siderolls.com. We have had it up and running for several years. On this site you can list any paper related commodity you want to buy or sell. Many people look at this site every day—we have the data to prove it. Yet, few ever list anything here, even though it is absolutely free and without any catches (as of this writing, there is nothing listed on it). Why? I think it is because most think they can get a better deal elsewhere, in a closed system. (We have a similar site, www.fixedassetrecovery.com, for used equipment, which has a similar track record.)

So, the next time someone asks “What’s the market price?” tell them that there is no market price, especially if one is depending on a closed system for data. It is a paradox, everyone wants open pricing, they just don’t want to participate in making it happen.

Of course, there is a way to take your business completely out of this monkey business—make your product “special” not a commodity. However, it will take an entire book on marketing and sales to explore that topic.

Please be safe. North and South, we are into seasonal changes—the northern hemisphere going into fall, the southern into spring. These both bring about changing conditions that can cause seasonal variations in how we operate safely.

Be safe and we will talk next week.