The commodity trading coverage at Business Insider is not as good as the rest of the blog. I am hopeful the spread between the rest of the blog and their commodity coverage narrows because I genuinely enjoy the blog.
In the recent post Soft Commodities Are In A Permanent Downtrend: This is Fact, Not Opinion, the author has gotten a bit twisted up.
Soft commodities are in a permanent long-term downtrend since technology is in a permanent long-term uptrend.
Here are a few clarifying points:
Softs are coffee, sugar, and cocoa (and sometimes cotton) because of how the data was gathered and transferred by the former CSCE, Coffee Sugar Cocoa Exchange. Frozen Concentrate Orange Juice found its way in there sometimes too. The article is supposed to be about Softs according to the title, but the contents seem to be about Grains and Oilseeds as the author mentioned corn and wheat by name.
Technology may have an impact and lower labor costs, but if commodities become too cheap, farmers will rotate crops to produce higher financially yielding crops.
New technology tends to be more expensive too. Farmers are reluctant to spend/finance new technology in the face of lower revenues.
Coffee, Sugar, and Cocoa (softs) are not grown too much in the US. We are net-importers of sugar cane, coffee, and cocoa for the most part. We can produce sugar from beets and corn though, for example.
Commodity traders and investors can readily sell short for months to years in advance. There is no lending mechanism to hold them up. There is no prime broker who’ll lend only to big HF clients. There is no immediate demand from the actual owner who wants to take possession of his/her certificates. There are no dividends to pay. (There are no rebates either :) )
Permanent long-term uptrends or downtrends or sideways trends notwithstanding, there will still be seasonal relationships between old crop and new crop spreads that can yield profits. These are called intra-commodity spreads.
There will always be trade-offs and indifference prices between some of the grains that feedlotters use to fatten up the livestock, because they watch what they pay for the actual percent of protein they garner from the grain itself. That is a weight issue, not volume (grains are priced by volume/bushels), feedlotters think in how many pounds of protein do I need to bring the steers to market. These spreads go under the chapter on inter-commodity spreads.
USD and foreign currency fluctuations can have an impact on commodity prices, and net imports/exports, for every country.
Interest rates affect carry charges, as do shipping and insurance rates, and those are reflected in commodity prices.
Acts of god are facts of life in my world.
Latest posts by Michael (see all)
- What you need to do to survive your first three years - May 21, 2018
- If you want to succeed in the markets, these three things must line up - May 18, 2018
- “Mike, what markets are you trading?” - May 17, 2018