Commoditizing Wealth

Trading on commodities is as old as trading – perhaps several thousand years if we discount stone-age men trading furs for axes. For the past 60 years commodities have consistently beaten inflation, and since the financial meltdown and the entrance of many countries into zero and even negative inflation rates, commodities – whether safe-haven gold, volatile oil or agricultural necessities – is perhaps the best long-term investment available.

Corn

Corn is a surprising commodity. Considering its past dominance in the global human food chain – especially in developing economies, one would expect its price to be on a never-ending upward spiral and its availability on trading platforms – universal. It’s neither. Prices can be volatile; its demand falls as food technology advances, and very few brokers actually offer corn.

Major Producers, Importers & Exporters

The US is the world’s major producer, producing over 350 million tons annually, followed by China and Brazil. Trade is highly influenced by trade agreements and political factors.

Issues Impacting the Corn Trade

As with all agricultural commodities, prices are highly sensitive to climate change. Since production is centralized in major locales, the price of transport (oil) impacts the price of oil. Another factor to mention is that less and less corn is being used for food, with 40% of corn usage in the US devoted to ethanol production.

Soy Beans

Soy is a relatively new product on world markets. Introduced to Europe in the 18th Century, it has become a major source for cooking oil and other protein supplements.

Major Producers, Importers & Exporters

Once again, with 55% of the cake, the US is the world’s major producer (108 million metric tons), of which a third it exports. It’s followed by Brazil (86 mmt), Argentina, China and India. China is also the world’s major importer – 41% of global imports. After corn and natural gas, the soybean market is considered to be one of the most liquid, thanks to its being traded in at least 6 commodities exchanges (Chicago, India, Argentina, Brazil, Liaoning – China, Osaka – Japan, and Tokyo), but also quite volatile.

Issues Impacting the Soybean Trade

Besides weather, soy is also sensitive to soybean rust. Being a major feed for cattle, the demand for beef will impact soy prices.

Wheat

Wheat is an investor’s dream – both weather-sturdy and still THE dominant food staple, it is harvested quickly and – even today – one of the most important components of the global commodities market.

Major Producers, Importers & Exporters

The European Union is the world’s largest wheat producer, with 160K metric tons, followed closely by China (130kmt) and India (87kmt). Ironically, the poorer a country, the higher its demand for wheat, with the product going towards cattle feed in others. The major importers are China, followed by India and Australia, which uses the major part of its imports to feed its livestock.

Issues Impacting the Wheat Trade

Alternative products (corn and rice) and new technologies continuously finding their way into the market, the futures industry is predominant in wheat, with producers, wholesalers and retailers locking in profits and ensuring prices long before a crop comes in. Despite its immunity, speculators should keep an eye on weather reports.

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