What makes commodities trading interesting is its strong connection with the economic landscape. The most straightforward example is oil — many consumers only think about oil prices in the context of how it directly impacts their wallets; in other words, how much they will end up paying at the pump as the result of price fluctuations. However, the price of oil can potentially affect many companies, directly or indirectly, simply because of the shipment of products from where it is manufactured to the shelves.
Furthermore, oil price is always a discussion point between politicians. In addition, commodities are often the most significant exports of developing countries, and revenues obtained from them have an important effect on the economies and living standards in these countries.
Investors can gain exposure to commodities indirectly by investing in companies that rely on commodity prices or through the purchase of mutual funds. Direct exposure to commodities would be buying into a futures contract.
This is known as paper trading. Wilhelm Schnotz has worked as a freelance writer since , covering arts and entertainment, culture and financial stories for a variety of consumer publications. At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors.
This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. These returns cover a period from and were examined and attested by Baker Tilly, an independent accounting firm. Visit performance for information about the performance numbers displayed above. More Articles 1.
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We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Commodity Market A commodity market is a physical or virtual marketplace for buying, selling, and trading commodities.
Discover how investors profit from the commodity market. What Does Cash Market Mean? A cash market is a marketplace in which the commodities or securities purchased are paid for and received at the point of sale. Soft Commodity A soft commodity is a grown agricultural commodity such as coffee, cocoa, sugar, and fruit.
What Is a Derivative? A derivative is a securitized contract whose value is dependent upon one or more underlying assets. Its price is determined by fluctuations in that asset. Historically, winter has been the season with the lowest demand for pork belly products. However, recent consumption patterns show less seasonal differences in demand.
Strong demand for pork bellies during the winter can cause a dwindling of stocks. This, in turn, can create tightness in the supply and higher prices. Traders carefully monitor this data for clues about the future price of pork bellies. Unexpected reductions or increases in belly stocks can have dramatic effects on prices. China is a giant in both pork production and consumption. Consumption of pork products around the globe had been rising at a very robust rate until a few years ago.
Since then consumption has risen modestly. Some of the slowdown in growth is attributable to a moderation in Chinese demand as consumers substitute more vegetables for pork in their diets. China will undoubtedly continue to dominate the world in pork consumption.
The country has a long history of favoring pork over other animal proteins. As its population grows and gets wealthier, it will likely ramp up consumption again. Pork belly prices are very likely to be correlated with overall pork demand. Since China drives the pork market, traders should pay attention to its consumption patterns. Consumption of bacon in the United States has been on the rise in recent years.
Moreover, bacon is no longer just a breakfast item in the United States. The product appears in everything from desserts to alcoholic beverages. There are many explanations for the rise in bacon consumption. The popularity of high-protein diets and the emergence of bacon as a trendy food are two possible reasons. Increased US bacon demand has produced tremendous volatility in pork belly prices. Supply shortages have caused prices to skyrocket and then eventually retrace.
This price action suggests US consumers are sensitive to higher bacon prices. Traders should pay close attention to US per capital consumption patterns for clues about pork belly prices. The pork belly market requires a steady supply of hogs to meet demand, so surpluses or shortfalls can impact prices.
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