Nations and their citizens have felt the huge economic impact of the commodities market throughout history. Although the history of it is still unclear, it’s suggested that China may have engaged in trading rice futures as far back as 6000 years ago.
But one thing is certain, throughout history, shortages of critical commodities have started wars. For example, during World War II, Japan invaded foreign lands in search of rubber and oil. At the same time, oversupply can also have a negative impact on a region as commodity prices will tumble.
So regardless of whether you’re investing in it or not, it’s important to keep an eye on the commodity markets.
Energy is a leading category when it comes to commodities. This can cover anything from natural gas, crude oil, gasoline, and even heating oil.
Metals commodity market has all the main traded metals like platinum, gold, silver, and copper.
Agricultural commodities include soybeans, rice, corn, wheat, cocoa, cotton, sugar, and coffee. This is a major category as it affects us all.
Livestock and Meat are also involved in futures trading and it includes live cattle, feeder cattle, pork bellies, and lean hogs.
The market is built on basic economic principles. This means that when the supply is abundant, the prices will be low. When supply is low, prices will rise. As a result, investors need to pay attention to external variables that can have an impact on supply.
For example, if you’re investing in corn futures, you will have to look at things like weather patterns, political situation, and diseases in the region.
Investing in commodities can sometimes become a risky business because it can be difficult and sometimes impossible to predict all the variables that can affect the final outcome. This is the main reason why trading in grains can be volatile in the summer months when the weather rapidly transitions.
As a result, experts recommend that you don’t allocate any more than 10% of your portfolio for commodities. Having said that, if there is a specific trend that you become aware of or if you’re a seasoned veteran, this shouldn’t hold you back from investing more in commodities.
The bottom line here is that commodities can quickly become a lot like gambling if you’re making uninformed decisions. However, if you play it safely with a lot of knowledge, you can make reasonable investments in the commodity market.