In world of commodities, surplus hurts too. Exporting countries await improved global growth to sop up gluts

Each morning at the great commodity exchanges in Chicago, floor traders gather to begin thrashing out futures prices for metals, grains, meats, and dozens of other raw materials. It seems only right that this take place in a city Carl Sandburg called the ``hog butcher to the world.''

But the glory years of commodities trading were the 1970s, when shortages seemed to crop up everywhere and prices went through the roof.

Since about 1980, however, much to the dismay of farmers and miners around the world, commodity prices have stalled.

These days officials of the Chicago exchanges talk excitedly about stocks, bonds, options, and futures. Commodities are still traded, but they are yesterday's news.

Yet commodities are the prime money earners for developing nations. Thus, this commodity price deflation is one of the reasons the international debt crisis is as bad as it is.

Brazil sells coffee and cocoa. Argentina and United States farm regions sell beef and grains. Zambia and Zaire sell copper. Mexico and Venezuela - and Texas and Louisiana - sell oil.

The problem is that everybody sells too much. This has depressed prices, cut earnings, and made it extremely difficult for these countries to service their loans.

The billion-dollar question for debtors and lenders, whether in the third world or in the US, is: When will commodity prices start to recover?

The answer, according to economists who follow commodity prices: Not until global economic growth improves and global gluts start to disappear.

``I don't expect a pickup in commodity prices in the near future,'' says D. Gale Johnson, professor of economics at the University of Chicago. ``Demand is growing slowly. A substantial economic recovery in Western Europe and Japan would be needed.''

David Hale, chief economist with Kemper Financial Services in Chicago, says each commodity is in different shape, but in general it will be the mid-1990s before prices recover. Thus, barring a master stroke on the part of bankers, governments, or debtors, the financial tension over hard-to-service loans is likely to persist.

The roots of commodity deflation, Dr. Hale says, go back to the oil shocks of the 1970s. Big hikes in oil prices created excess savings in oil countries.

These were recycled into loans to developing nations. Often those loans went to develop new mines, refineries, and farm programs, boosting supplies and causing prices to fall.

Eventually, Hale says, the excesses will diminish, especially given the current low level of investment in these areas.

``There will be a commodity cycle again,'' he predicts.

Some prices have staged rallies recently, but both Hale and Professor Johnson warn against seeing these as the beginning of a long-term uptrend.

Copper is a prime example. A strike at a big Canadian smelting plant, coupled with shipment problems in Zambia and the Philippines, has slowed output. But these problems will be overcome fairly quickly.

Livestock, meat, grain, sugar, and soybean prices have edged up too. But the rallies are little more than technical blips because of seasonal factors and one-time purchases.

Coffee, cocoa, and other minerals, meanwhile, are still in the tank. Most metals are suffering because of a continuing shift to plastics and other alternative materials.

Farm products will recover only after subsidies and other policies that encourage overproduction in the US and the European Community are radically altered, says Hale.

The future of oil prices, which have held steady in recent weeks, depends on continued adherence to a production quota by the fractious members of the Organization of Petroleum Exporting Countries.

Still, if everyone can hang on long enough, today's negligible investment in developing these commodities will take its toll, especially if, at the same time, global demand rises.

Moreover, if potential markets such as China and India blossom, demand could rise even faster. Hale notes that if China is able to meet its goal of substantially higher per capita income, there would be new areas of growth for products like automobiles. If only 1 in 10 Chinese bought autos, Hale says, ``there would be a huge pickup in demand for metals.''

All that is in the future - too far in the future to be reflected in today's prices on the commodity exchanges.

``We're talking about a minimum of three years before there is a turnaround,'' says Johnson.