WHAT ARE COMMODITIES??
Commodities are an important part of everyday life. The value of a commodity is in sync with the simple economic principles of supply and demand. If a supply shortage develops, demand increases. Increased demand drives up the price of that commodity. The same is true in the alternative. An increase, or overabundance, of a commodity will decrease its value.
Supply shortages can come about through a natural disaster or political conflict. California is well known for having natural disasters. California is also well known for producing some of the best wines. When wild fires threatened California vineyards, the price of grapes spiked upward.
On the demand side, global economic development and technological advances often have a less dramatic, but important effect on prices. Case in point: The emergence of China and India as significant manufacturing players has contributed to the declining availability of industrial metals, such as steel, for the rest of the world.
BRIEF HISTORY OF COMMODITY TRADING:
Commodities were traded long before stocks. Going back to our first civilizations, empirical evidence confirms that these ancient civilizations traded numerous types of commodities. Most people recall a lesson or two from high school history class addressing the importance of trade routes. Trading between these earliest cultures was crucial to their sustained existence and their growth. Commodity trading was an essential business. Various kingdoms and controlled territories rose and fell in proportion to their ability to create and manage complex trading systems. To prosper, any society seeking to avoid extinction had to create a functioning commodity exchange. This exchange fueled economic development; allowing for taxation resulting in profit. Even today, commodities remain a vital component of both our US economy and the Global economy today. Most recently, trade talks between the US and China have been a focus of attention. The continuing growth of the Chinese economy has placed a premium on the value of steel.
We`ve remained in the commodity trading business since 1982. That`s over 37 years` worth of experience. Some people shy away from the commodity markets out of fear based on their lack of understanding. Not understanding the commodity markets is one of the many things we walk our clients through. Our knowledge, experience, and resources cover the more complex factors associated with commodities while we work to help ensure your investment is earning you a healthy return. Contact us today with any questions.
TYPES OF COMMODITIES
Commodities can be grouped into the following four categories:
- Metals (such as gold, silver, platinum and copper)
- Energy (such as crude oil, heating oil, natural gas and gasoline)
- Livestock and Meat (including lean hogs, pork bellies, live cattle and feeder cattle)
- Agricultural (including corn, soybeans, wheat, rice, cocoa, coffee, cotton and sugar)
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