Commodity prices: Comparative Study

Fisherking asked me how did I manage to have commodity prices so high in my end-game in the Russian campaign I posted on a few days ago. To be honest: I am not so sure myself exactly how I did it. For one, I always prioritize economic development very early in the game.

Anyway, I did this comparative study: loaded the game as it was in 1793 (sorry, 1799 save has been deleted inadvertently). Attachment A shows commodity prices at that point in time. I'd like you to pay attention to Ivory and Spices (two goods that I do not produce in my towns):

Ivory price = 38
Spice price = 34

Let's call that "case A".

I then proceeded to destroy all buildings enhancing town wealth in my mainlaind provinces (I was too lazy to bother about the few colonies I had); I cannot guarantee that I destroyed ALL for the very same reason: I was too lazy to check. I also left ports alone (since those are they key for good transportation: I wanted the transportation to stay the same). However, you can be assured, it was an economic cataclysm of global scale. On the next turn, I measured the commodity prices again: you can see it in attachment "case B".

Notice the difference between Ivory and Spice prices with A?

In case B:
Ivory price = 34 (> 10% drop from 38 in case A)
Spice price = 28 (about a 20% drop from 34 in case A)

What does this example teach us? Commodity demand is a function of the overall town wealth development. If the AI and the player have high town wealth, the commodity demand is high. In my campaigns I actually gift AI the economic techs I research just to give their economies a boost. As a result, I am also boosting the overall demand for the commodities I produce myself.

Notice also that the drop in fur prices was much smaller (from 14 to 13): this is due to the fact, that destroying town enhancements in Russia, I also destroyed fur trade posts; Russia is a major supplier of fur to the market; Thus, by destroying the infrastructure, I was destroying both supply and demand at the same time resulting in low impact on the price.

P.S. Also, realize, that by destroying town enhancements I was destroying just part of my wealth. All the accumulated town wealth (I had it significant) stayed. If that was destroyed, the drop in commodity prices form A to B would be way more pronounced.

Interesting analysis. Do we know how the supply side affects prices as well?

My first campaign, I did not pay attention to this, but have been keeping an eye on them as well in my 2nd. It seems that all commodities have been consistently dropping in price every year, to the point that I assumed that they would eventually be worthless. I think though, that especially early on while trying to grow my trade revenue I prioritized building plantations & trade ports over weavers/workshops & infrastructure.

Is it safe to assume that for every plantation or fur trader you upgrade, you will see a small decrease in price due to increased supply? And that based on your findings, increasing town wealth will increase comodity prices across the board?

If this is the case, it seems one could reach this conclusion: that early in the game, your build priorities should be on town wealth vs. trade growth.

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Originally Posted by Flavius Gonzo

Interesting analysis. Do we know how the supply side affects prices as well?

My first campaign, I did not pay attention to this, but have been keeping an eye on them as well in my 2nd. It seems that all commodities have been consistently dropping in price every year, to the point that I assumed that they would eventually be worthless. I think though, that especially early on while trying to grow my trade revenue I prioritized building plantations & trade ports over weavers/workshops & infrastructure.

Is it safe to assume that for every plantation or fur trader you upgrade, you will see a small decrease in price due to increased supply? And that based on your findings, increasing town wealth will increase comodity prices across the board?

If this is the case, it seems one could reach this conclusion: that early in the game, your build priorities should be on town wealth vs. trade growth.

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That bold part above: for enhancements producing goods it's not a 1 to 1 'thing'. Increasing the level of traders and plantations increases also the town wealth of the respective provinces (check it out on the province's town screen). So, in the long run, the increase of wealth of these plantation/fur hunter provinces will help the demand for OTHER GOODS besides fur and sugar, etc...

I was thinking about including another screenshot (case C) that would be the effect on prices of me severing all trading relationships (cutting the supply to world market), but I didn't because I was too lazy once again. I thought the supply side was pretty self explanatory: once you add a ship to a node, the price goes down a bit all else being equal.

Anyway, in summary: it's a 'touch and go' system with sensitive variables determining supply and demand. You can shift one, you can shift the other or shift both at the same time achieving different results (market prices): just remember: it's the AGGREGATE demand and supply of the AI and you that determines the final price.

Another thing that flows from this analysis: the AI being at constant war with each other and raiding each other's province improvements results in overall stagnation (or fall) of prices because the AI town wealth is not growing.

On the same token, you're right: early on, one should concentrate getting that town wealth growth positive [it usually is negative at the start of the game]. In the end, it accumulates to a lot of $$$ (in taxes and improved trade revenues) in the end-game.

One thing I'd add is that trade prices are also dependent on difficulty level. VH ivory & spice prices will go above 30 per bale. Pre-patch, I think they were capped at 25 or so on Hard. I haven't been able to go above 20 so far in my post-1.2 Hard GB campaign... That is with every trade node occupied with at least one ship.

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Originally Posted by anweRU

One thing I'd add is that trade prices are also dependent on difficulty level. VH ivory & spice prices will go above 30 per bale. Pre-patch, I think they were capped at 25 or so on Hard. I haven't been able to go above 20 so far in my post-1.2 Hard GB campaign... That is with every trade node occupied with at least one ship.

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My first post-patch 1.02 campaign was with GB on H. I quit it once I had 1.5 million in treasury in 1755... My commodity prices were higher than 25 for sure... If my memory serves me right, I stopped adding indiamen at the point when price dropped to 26 (for ivory and spices)...

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Originally Posted by Slaists

Words

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You should have done those little intersecting supply and demand curves

So if I understand this correctly trade depends on town wealth depends on population, so population growth is critical, which means tax on peons should be lowest , farms and fisheries should be built as all contribute to town growth...

Do people agree with this statement on basic strat?

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Originally Posted by Razor1952

So if I understand this correctly trade depends on town wealth depends on population, so population growth is critical, which means tax on peons should be lowest , farms and fisheries should be built as all contribute to town growth...

Do people agree with this statement on basic strat?

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Nope. CA has separated population growth from wealth growth. If you open your province summary sheet you will see whether your town wealth growth is positive or negative. Below that display there is a population display, which shows whether the population growth is positive or negative. Within the wealth growth diagram, wealth and it's growth is broken into components: none of which relate to population growth.

In short, the following contribute to wealth growth: roads, ports, town developments (such as weaveries and smiths), mines, farms, plantations, fur traders, etc. + trade itself. Enlightenment techs and industrial techs compound the wealth growth from all the previous (accelerate it).

Another important factor is taxes of the noble class: if the nobles are taxed heavily, wealth starts to shrink. I usually leave the noble tax where it is by default (in the middle) achieving what's in my opinion optimum between short term cash income (taxes) and long term wealth growth (eventually resulting in higher tax and trade income).

The only place where population growth helps you is developing new towns within your provinces. Once all the villages of a province have been developed population growth becomes completely irrelevant for the economic side of the game.

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Originally Posted by antisocialmunky

You should have done those little intersecting supply and demand curves

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I think, that's what CA has used in designing the economic engine for ETW (They've done a pretty good job in modelling actually). I was just trying to explain what contributes to shifts in those supply and demand curves in the game context.

Since demand is growing slowly you can increase supply also. In my GB campaign I was able to keep prices of ivory and spices at 25 to 26. With other commodities this is very difficult since you do not control the supply. At the end of my campaign coffee became scarce and the price went up to 21 gold. If I capture parts of South America I always look at the trade screen to watch the prices. If the price of sugar is very low I try if I can build a cotton or a coffee plantation over there.

In 1795 I destroyed the UP. They had a two huge trade fleets, one in the East Indies and one on the ivory at Madagascar. Since these were destroyed, the supply went down and prices of spices went up to 34 and of ivory went up to over 30.

You touch on a good point Monsieur Alphonse: diversification of plantations.

It's especially relevant in Indian and American colonies, where often you have a choice of which commodity to produce on each plot (some, i.e. most in the caribean islands, with the exception of Cuba and Santo-Domingo, I think are fixed to sugar).

You will usually have the choice in America of Coffee/Sugar or Tobacco/Cotton and in India of Cotton/Tea. It's a good idea to diversify your supply and not put all your eggs in one basket, so to speak. In other words, develop a proportion of each commodity so that your trade is more robust and (hopefully) more resilient. Remember that Sugar and Spice can be supplied in large quantities by trade fleets.

In line with what Slaists has said on controlling supply and demand, and only because it hasn't been explicitly mentioned yet, it's important be mindful that you are trying to balance the quantity of goods you trade with their price.

What I've yet to be able to project is to what extent small increases in supply and small decreases in price do balance out. The complexity of it lies in all the other factors in trade: port, town, infrastructure & city development of player & AI and the number and worth of trade agreements.

I generally go softly softly though. Pre v1.2 your revenue would jump whenever and however you upgraded plantations, there is a finer balance now in v1.2 so after capturing territory and trade nodes (in the early game, with about 2-3 ships), I don't automaticaly upgrade them or add more ships until the prices actually start to increase.

Price commands supply for me, but rest assured that even if you do over-do the supply a bit, the prices will always recover.