Trading Commodities
- Thread starter ms33
- Start date
Specifically with respect to the agricultural commodities (such as corn, soybeans, coffee, sugar, wheat, orange juice), the supply side is heavily determined by weather. Let's say that because of the drought, the crop was reduced by 30% in a particular year. Assuming that the demand is the same, the price must go up by (roughly) 30%.
By comparison, there is no such single powerful factor that influences the supply in the financials (such as index futures). Instead, the supply/demand is affected by the aggregated expectations of the market participants, and these expectations change slowly. Unlike the crop heavily affected by weather, the GDP (and the GDP expectations) don't go from a 30% growth to a 30% contraction from one year to another, at least in developed countries.
Then there are additional factors for agricultural commodities, such as storage costs for future delivery, and the fact that they are perishable goods.
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I don't trade OJ, and I don't follow the OJ news. But you prompted me to look it up. Looks like there was some announcement today by the Brazilian government with regards to the increase (by USD $5.8 billion) in farmers' credits/subsidies. It's my understanding that Brazil is the largest producer of oranges in the world (while the U.S. is the distant second). So today's spike in OJ prices may have something to do with that announcement, which was made at about 11:30 am EDT.
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What makes the futures any more high risk than the ETF? The physically backed gold ETFs are a tax nightmare and track the same underlying, seems irrational to prefer them.