Commodities are increasingly popular to invest in. But commodities are a wide range of products that are being used in either consumption or production. Therefore, different commodities are affected by different external factors. To sharpen your research, we've asked our Head of Commodity Strategy, Ole S. Hansen, to outline what factors are most relevant to pay attention to, when diving into the four commodity subgroups, energy, industrial metals, precious metals and agricultural commodities.
Here we look at what mainly affects precious metals. Agricultural commodities—or agros—are generally separated into three categories: grains (wheat, corn, etc.), softs (cocoa, coffee, sugar, etc.), and livestock. Agro prices are heavily affected by weather and seasons. If the weather is working against a given crop, either through heat, drought or excessive rains supply will be negatively impacted, potentially sending prices soaring. Seasonality is important in the sense that the price swings of key crops tend to weaken when harvest is closing in and the production result becomes clearer. Note that when trading agros, you trade actual food for actual people. So, in times with major supply constraints there may be an ethical dilemma in investing in them, as you essentially drive up the price of food people can’t afford.
What to pay attention to, when researching agricultural commodities: