Last Updated on 10 February, 2024 by Trading System

It is almost impossible to live without making use of certain commodities like wheat, corn, orange juice, electricity, cooking gas, and others. Although you have been using these commodities and may have heard of commodity market reports on financial news channels, do you know what a commodity market is?

A commodity market in trading is a physical or electronic marketplace for trading where buyers and sellers can trade any raw or primary economic goods. The commodity market can be either be a spot market, where the goods are exchanged immediately, or a futures market, where the goods are delivered on a future date.

There are so many things you may want to know about the commodities and how they are traded. We have made this comprehensive guide to explain what you need to know about the commodity markets — continue reading!

History of Commodity Markets Trading

The history of commodity markets can be discussed in three stages:

• Ancient times
• Modern era
• Recent developments

Ancient Times

Commodity trading is as old as the earliest human civilization, but where it started and the exact time it began is still debatable. While some scholars believe that the earliest civilization was in Egypt, others believe it was in Sumer (present-day Iraq). But there is some archaeological evidence suggesting that rice may have traded in China about 6,000 years ago — earlier than both the Egyptian and Sumerian civilization.

The Sumerian people were believed to have traded livestock between the 4500 BC and 4000 BC. They used clay tokens as a form of money to buy livestock. The clay tokens were sealed in clay vessels, and then, a writing tablet was used to record the quantity of livestock to be delivered and the time and date of delivery. So what they practiced looked more like livestock futures trading.

Other early civilizations, at various times, used pigs, seashells, cowries, and other items as primitive forms of money to purchase various commodities. But things kept evolving, and the nature of commodity trading started getting standardized.

Later, in the ancient Greek civilization, people started attaching value to precious metals because of their beauty. At first, only those belonging to royalty could possess gold and silver, but with time, these precious metals were exchanged for other commodities and were even used for paying for labor. Because gold and silver can be melted and reshaped into coins of the same size, they became widely used as a standardized store of value and means of exchange — they became monetary commodities.

People naturally attached more value to gold, owing to its rarity, beauty, and uniqueness, and it was the more preferred means of exchange in the ancient civilizations. As a result, gold became the most popularly traded commodity in those days, as it was accepted in all types of trading across all empires.

You can read more about the history of the commodity markets here.

Modern Era

In the early part of the 16^th century, trading started at the Amsterdam Stock Exchange. Although it is called a stock exchange, the first securities to trade on the exchange were commodities, which started trading on the exchange as early as 1530. Trading was mostly carried out on spot market basis and involved the use of different types of sophisticated contracts, such as short sales. There were even some elements of forward trading on the exchange but no clear-cut futures contracts.

The First Futures Commodity Market

The first recorded organized commodity futures market in the modern era started in Osaka, Japan at the Dojima Rice Exchange in the late part of the 17^th century and early part of the 18^th century. The rice merchants would store the commodity in warehouses for future use and later sell the rice receipts to those in need of rice. But prior to the Japanese rice trade, there was some semblance of futures trading in the 16^th century London, where businesses were conducted in coffee houses.

US Commodity Markets

In the United States, the first commodity market was established in Chicago in 1848. Situated at the center between the farmers in the Midwest and consumers in the East, Chicago became a natural hub for trading agricultural commodities, such as wheat, corn, cattle, and pigs. Farmers would bring their goods to Chicago to sell to merchants and consumers from different parts of the country.

The thriving commerce led to the establishment of the Chicago Board of Trades (CBOT), the first futures and options exchange in the Western World. In the beginning, commodity trading was on the spot, but as farmers and merchants looked for ways to hedge against adverse price changes, forward contracts became a common form of trading in Chicago.

In fact, when the CBOT was opened, the first contracts to trade on the exchange were forward contracts. It started with corn contracts but would later include livestock and other common grains. By 1865, the exchange had standardized the contracts to minimize the rate of counterparty default. With the enactment of the Commodity Exchange Act in the 1930s, the list of commodities traded on the CBOT expanded to include butter, mill feeds, soybeans, and Irish potatoes.

Meanwhile, the Chicago Produce Exchange was established in 1874, but later, the name was changed to Chicago Butter and Egg Board. As other commodities were introduced to the exchange, it was restructured in 1919 to become the Chicago Mercantile Exchange (CME).

By then, several commodity exchanges have sprung up in different parts of America and the rest of the world. The New York Mercantile Exchange (NYMEX) was formed in 1882 and focused mainly on energy contracts; the Minneapolis Grain Exchange (MGEX) focused on red hard spring wheat futures; while the Commodity Exchange Inc. (COMEX) deals mainly on metal contracts.

Commodity Markets Outside US

In the UK, the London Metal Market Exchange Company was established in 1877 to deal on metals. It would later be renamed London Metal exchange. Although it initially started with copper, other metals like aluminum, nickel, lead, steel, and zinc would later be traded on the exchange after the Second World War.

Various commodity exchanges were also established in different parts of Asia in the late 19^th century — notable among them were the exchanges in India. With the influence of the colonial masters, Britain, the Bombay Cotton Trade Association established an exchange in 1875 to deal on cotton contracts. Around the same time, the British also introduced an opium exchange in Calcutta. From 1919 onwards, other commodities, like raw jute, were also traded on the exchange.

Meanwhile, commodity exchanges in Japan and China became modernized in the 20^th century. The Tokyo Textile Exchange and Osaka Grain Exchange were established in 1952. In China, the Dalian Commodity Exchange was established in 1993. In 1960, commodity futures exchange was established in Australia — the Sydney Greasy Wool Futures Exchange (SGWFE). The first commodity exchange in Africa was the Africa Mercantile Exchange in Kenya, established in 2005.

Recent Developments

The traditional system of trading at the commodity exchanges was the open-outcry auction system. In this system, buyers and sellers stay in the trading pit of an exchange and yell their bid and offer prices, and whenever any two parties agree on the price, a trade occurs. The exchange then transmits the price to reporting agencies.

However, with the availability of the internet and electronic trading platforms, many commodity exchanges are now replacing the open-outcry system with the electronic trading system or, at least, operating both systems at the same time. The CME Group, in 1992, became the first commodity exchange to start an electronic trading platform — the Globex trading platform — and they use it together with the open-outcry system.

In the electronic trading system, sophisticated computer programs matches buy and sell others for immediate trade execution, and at the same time, buy limit and sell limit orders are queued up, awaiting execution when a matching market order comes in. At every point in time, an ask-bid price quote is transmitted — the lowest-priced sell limit order becomes the current ask price, while the highest-priced buy limit order becomes the bid price. The difference between the current ask and bid prices is called the spread. One of the most important benefits of the electronic system is that traders don’t need to be in the pits any more, as they can conveniently place their trades from anywhere in the world.

Commodity Market Basics

Many different commodities are traded all over the world, and they have been the foundations of the world economy. The commodity market is not only important to global trade but also helps businesses get access to the raw materials they need for their operations. Here are the basic things you need to know about the commodity market.

What Is a Commodity?

A commodity is an economic good or raw material which businesses and individuals buy and sell in the marketplaces. For the most part, commodities are used to produce other goods and services that can be directly utilized by consumers.

On the exchanges, commodities are standardized and can be interchanged with other commodities of the same type because the quality is fairly uniform across all producers. This quality of commodities is referred to as fungibility. When we say that commodities are fungible, we mean that two equal units of the same goods should command the same price at any part of the world, except for local differences in taxations and cost of transportation.

Commodities trading on an exchange must meet the specified minimum standard — the basis grade. The idea is to have as little difference as possible between commodities of the same type from different producers. For instance, an ounce of gold should be the same, irrespective of where it was mined.

Thus, for an item to be considered a commodity, it must meet the following conditions:

• The item must be standardized

  

• It must be in a raw state — for agricultural and industrial goods
• The price should be fluctuating significantly to create a viable market
• It has to be usable at the time of delivery

There are different ways of classifying commodities. In some cases, they are classified as hard and soft commodities. Hard commodities are usually natural resources that are extracted or mined. Some examples of hard commodities include silver, oil, and gold. Soft commodities, on the other hand, refer to agricultural products, such as wheat, corn, coffee, sugar, and soybeans, as well as livestock like cattle, pork, and hog.

But most of the time, commodities are classified into:

• Energy
• Metals
• Livestock
• Agricultural products

What is the Commodity Market?

Any place or platform where traders, farmers, corporations, and other stakeholders can buy or sell any commodity in bulk is a commodity market. If you have traded on commodities before, you must have done that on a commodity market. A commodity market can either be a spot market or a futures market.

A spot commodity market (in contrast to the forward/futures market) is one in which the commodity is up for immediate settlement and delivery. Typically, trades in the spot market are settled in less than two business days from the trade date. The rate (price) in a spot market is known as the spot price, and it may be more susceptible to the changes in demand and supply than the rate in a futures market.

In the futures market, the price of a contract is specified in real time, while the commodity is scheduled for delivery at the expiration of the contract. That is, the commodity is delivered on a future date after the trading.

The spot price may indicate the expectation of future price movement, depending on the commodity involved. For a hard commodity, such as gold, oil, or silver, the spot rate is indicative of the market expectations of the future price movements. So the difference between the spot price and the futures price can be attributed to the cost of finance. (also known as contango and backwardation)

In the case of a soft commodity, the goods are perishable, so it is very expensive to store them for future use. This, of course, affects the spot prices. For example, during excess harvest, the cost of storage can outweigh the expected future increase in price and drive the prices lower — the opposite happens in planting season and during poor harvest. Because of this, the spot prices of soft commodities reflect the current situations of demand and supply, rather than the future prices.

Commodity Market Regulation

There are many commodity marketplaces all over the world, such as the London Metal Exchange in the UK, Euronext in Europe, Dalian Commodity Exchange in China, Multi Commodity Exchange in India, Tokyo Commodity Exchange in Japan, Africa Mercantile Exchange in Kenya, and the Chicago Mercantile Exchange Group in the US.

Just like other security markets, the commodity market is regulated by government agencies and professional associations in each country. For example, in the EU, the European Security and Markets Authority and Europe’s Commodity Market Council regulates commodity trading in the European Economic Area via the Market in Financial Instruments Directive (MiFID). The Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) are responsible for regulating the commodity market in the US.

How the Commodity Market Works

It is worth noting that the commodity exchanges don’t fix the prices of the commodities that trade on them. Instead, they create the enabling environment for price discovery through demand and supply of the commodities. In the trading floor of a commodity exchange, the commodity brokers, who are members of the exchange, buy and sell commodities on behalf of themselves and their clients via an open-outcry auction system.

In an open-outcry auction, the sellers and buyers announce their ask and bid prices. Any time two parties accept to transact, the trade is manually recorded, and the exchange transmits the price to news agencies all over the world. In recent time, trading is mostly done through electronic platforms, instead of the open-outcry auction on the trading floors. So both the trading and the dissemination of prices is now mostly done electronically.

Through their various clearinghouses, the commodity exchanges provide the counterparty for each trade, so the execution and settlements of the trades are guaranteed. Traders are often required, by the clearinghouses, to deposit a certain amount (margin) that will take care of any potential losses on a trade. This way, the risk of counterparty default is almost nonexistent. To make the transactions easier, commodity contracts are standardized — with the quantity per contract, quality, and settlement and delivery schedule clearly stated.

How Commodity Markets Help to Hedge Risk

While so many traders are in the commodity market to speculate on commodity prices, the primary aim of the commodity futures or forward market is to help both the producers and users of a commodity to hedge against adverse price movements in the future. Farmers, manufacturers, mining companies, oil refining corporations, and even governments of various countries come to the commodity market to hedge risk.

Unlike commodity futures contracts, which trade on the exchanges and are standardized, forward commodity contracts are direct agreements between the seller and buyer, so they are customizable and trade over the counter. However, both commodity futures and forward contracts are contracts for the exchange of a commodity in the future, thus, they can both be used to hedge risk.

Practical Example

To understand how commodity futures or forwards contracts can help a producer and a user hedge risk, we need to discuss a practical example.

Let’s say that the price of WTI crude oil is $50 per barrel, and the cost of mining is about $40 per barrel. If a company that mines WTI crude oil is worried that the price might slide further in the coming months, it can approach the commodity futures market to hedge against the perceived future price decline.

On the crude oil futures market, a contract stands for 1000 barrels of crude, the number of crude oil contracts the company will buy depends on its expected output. What is important is that by selling at the $50 per barrel at the present, it has secured a $10 per barrel profit on its future crude production, even if the price later falls below the $40 per barrel production cost.

Similarly, a crude oil refining company could think that the price of crude oil will rise in the coming months or that crude oil might become scarce. The company can decide to buy futures contracts of crude oil now to make sure it gets enough supply of crude oil in the future, at a reasonable price.

By buying the crude oil futures contracts, the refining company is paying the present price ($50 per barrel) of the crude oil to secure the delivery of the commodity in some months ahead. If, by that time, the price of crude oil has risen to $55 per barrel, the company must have saved $5 per barrel.

Who Might Use the Commodity Markets to Hedge Risk?

It is interesting to note that the parties here can be anybody: corporations, individuals, and even governments of different countries. As a matter of fact, this is how some governments of crude oil-producing and -consuming countries try to hedge their exposure to the crude oil market. Also, it can be any commodity — gold, silver, corn, wheat, etc.

Ways of Accessing the Commodities Markets

There are many reasons an investor may want to consider investing in the commodity market. It may be to bet on increased demand for the commodities due to a growing global economy. In other words, speculating on a price increase. For some people, especially the people who are involved in the production or utilization of certain commodities, the reason may be to hedge against price fluctuations.

Because the precious metals are traditionally seen as an alternative and more stable currency, some people use them to hedge against general inflation. Others simply come to the commodity market to fulfill their diversification needs since it usually moves in the opposite direction to the equity or bond market.

Whatever the reason for playing the commodity market, these are some of the ways an investor can access the commodity market:

Commodity Index Funds

Just like every other index, you can’t directly invest in a commodity price index, but you can invest through an index fund that tries to replicate the performance of the commodity price index.

A commodity index fund is a fund — which could be a mutual fund or an exchange-traded fund — that buys or sells various commodity futures contracts in accordance with the weighting of the commodity price index it aims to track. In other words, it is a commodity futures index fund, so it is liable to the contango and backwardation effects. For those who don’t know, contango and backwardation mean that the price of a futures contract is either higher or lower than the current spot price. This is because the market either expects the price to be higher or lower on the settlement date.

Examples of commodity index funds include

• Pimco Real Return Strategy Fund
• iShares S&P GSCI Commodity Index Fund,
• United States Commodity Index Fund (USCI)
• Wisdom Tree Continuous Commodity Index Fund (GCC)
• TR/CC CRB.

Call Options

If a trader thinks that the price of a commodity futures contract will move significantly higher in the coming months, he can buy a call option on the commodity. The call option gives him the right to buy the commodity futures contract at the strike price any time before the contract expires. So if the contract is trading significantly above the strike price during the life of the contract, the trader could execute the call option and make a reasonable profit.

While call options are good for taking long positions in the commodity market, a trader may also want to play the short side of the game. In that case, the trader can buy a put option on the commodity of interest.

Many commodity futures exchanges, like the CME Group and ICE, offer call and put options contracts on various commodities on the exchanges.

Futures Contracts

One of the most direct ways to invest in the commodity market is through the commodity futures markets. An investor can buy a futures contract on the commodity he is interested in.

A commodity futures contract is a contract that trades on a commodity exchange, which obligates the seller to deliver the specified quantity of the commodity to the buyer on a future date. Futures contracts are standardized, and the exchange clearly states the specifications of each contract, including the quantity per contract, grade of the commodity, currency denomination, and the method of contract settlement on expiration.

The clearinghouse of an exchange makes sure that contracts are executed smoothly and ensures that they are properly settled at expiration, according to the specifications of the contracts. It also supervises the delivery of the commodity, if required.

Forward Contracts

Similar to futures contracts, forward commodity contracts are also agreements for the future delivery of a commodity. However, unlike the futures contracts which involve an exchange as the middleman, the agreement in a forward contract is directly between the buying and selling parties.

Since a forward contract is not standardized, it can be customized to suit both parties. But because there is no middleman to guarantee the fulfillment of the contract, forward contracts are associated with high rates of defaults. Either party may pull out of the agreement if the price of the commodity is significantly unfavorable when the settlement date arrives.

Nonetheless, forward contracts are very common in commodity trading. Big corporations use forward contracts to trade commodities.

ETFs or ETCs

Investors and traders can also access the commodity market through exchange-traded funds (ETFs) or exchange-traded commodities (ETCs). Both can track individual commodities — such as gold, corn, or crude oil — or a basket of commodities. When an ETF is tracking a basket of commodities that forms a commodity index, it is known as a commodity index fund.

The difference between a commodity ETF and an ETC is that a commodity ETF buys futures contracts of the commodity (or commodities) it is tracking, while an ETC doesn’t buy the futures contracts. An ETC is a note underwritten by a bank on behalf of the ETC issuer, but unlike the traditional notes, an ETC is collateralized by physical commodities. So like an exchange-traded note, an ETC doesn’t have many tracking errors since it does not have the contango effect that comes with buying futures contracts — as seen in ETFs.

Whatever the case, any one of them can offer a trader exposure to the commodity market.

CFDs

A contract for difference (CFD) is a contract between a trader and broker to exchange the difference in the value of an asset, from the time a contract is opened to the time it is closed. In other words, the trader doesn’t, at any moment, own the underlying asset but can still benefit from favorable movement in the price of the asset. So CFDs are purely for speculation.

Traders who want to play the commodity market can do so through CFDs on the commodity of interest. There are many regulated online brokers that offer CFDs on various commodities. It only requires opening an account with the right broker.

OTC Commodities Derivatives

Trading commodities over the counter involves the transacting parties dealing directly without an exchange. The transaction in an OTC trade is private, so the agreed price may or may not be made public. In an OTC trade, the underlying commodity can be exchanged on the spot (spot OTC trade) or on a future date (forward contracts).

While trading commodities over the counter can carry higher risk, it may also come with greater profits. Nations and corporations do trade commodities outside of the exchanges, but retail traders may not find it helpful because it’s illiquid and has higher risks of default.

Best Options for Trading and Investing in the Commodities Market

We have seen the various ways to access the commodity market, but not all of them are useful to a retail investor or trader. These are the common options we think may be useful to retail investors and traders:

• Commodity Index funds and ETFs
• Futures contracts
• CFDs

Commodity Index funds and ETFs: A commodity index fund, ETF, or ETC can be a great option as long as the management fee is low. To invest in any of them, a trader needs to have a long-term outlook, since they’re not always very liquid. However, they are very easy to buy. All it takes is to open an account directly with the fund company — in the case of a commodity index mutual fund — or open a discount brokerage account. With a discount brokerage account, you can buy and sell an ETF or ETC, since they trade like stocks on the exchanges.

Futures contracts: Trading futures contracts are the best option for traders, who normally trade for short-term profits since there is higher liquidity in the commodity futures markets than in the commodity ETFs. In addition, when compared with CFDs, the cost of transactions is often lower. One concern about trading commodity futures contracts is the issue of making or taking delivery of the underlying commodity at contract expiration. But a trader can avoid it by closing his trades before expiration, rolling over to the next contract, or trading only contracts that are settled with cash.

CFDs: This is another option for traders because it takes away the issue of making or taking delivery of the commodity — CFDs are just instruments for speculating on the price movement. However, because the traders are at the mercy of the CFD broker that issues the CFD and the trades often have high spreads, we are not fond of CFDs.

How Should You Trade Commodities?

Now, looking at the above options, the recommended option for short-term trading is futures contracts, while the ETFs, Index Funds, or ETCs are recommended for long-term investing or position trading.

Commodity Market Categories

There different ways to categorize the commodity market, but generally, tangible commodities fall into the following groups:

• Metals
• Energy
• Livestock and meat
• Agricultural and softs

Let’s cover Each One of these categories, and look at some commodities that fall under each category!

Metals

Many different metals are traded on the commodity markets in different parts of the world, but these are the most popular ones:

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Gold

Owing to its beauty, luster, and uniqueness, gold has been a valuable commodity used for different purposes.

About the Gold Market

Gold is traded all over the world, across all the time zones. The market attracts a wide range of players, including producers, refiners, fabricators, end-users, fund managers, and speculators. While some use gold in the production of jewelry, others see it as a safe haven and use it to hedge against inflation and global instability. Also, fund managers use it for portfolio diversification, but speculators are in the market to profit from price movement. Because gold is seen as an alternative to fiat money, its price tends to vary inversely with the dollar.

Seasonality

Gold futures contracts tend to show some elements of seasonality. There tends to be a rise in price from the last quarter of the year to the first quarter of the following year. Gold usually performs poorly in the second and third quarters of the year.

How to Trade Gold

There are many ways to trade gold: investing in stocks of companies that mine gold, trading gold options, and trading gold futures. Trading gold futures contracts is the most direct way to trade it.

Another method is by investing in ETFs that track gold prices, such as:

• SPDR Gold Shares (GLD)
• iShares Gold Trust (IAU)
• ETFS Physical Swiss Gold (SGOL)
• Invesco DB Gold (DGL)
• GraniteShares Gold Trust (BAR).

Gold CFDs are possible options too.

The Exchange Where It Trades:

Gold trades on almost all metal commodity exchanges around the world. The most popular ones include London Metal Exchange, Shanghai Gold Exchange, Istanbul Gold Exchange, Tokyo Commodity Exchange, Multi Commodity Exchange, and of course, COMEX, a part of the CME Group.

Where Gold Is Mostly Produced

The major gold-producing countries are China, Australia, Russia, US, Canada, Indonesia, Peru, South Africa, Mexico, and Ghana.

Where Gold Is Mostly Consumed

The major gold-consuming nations in the world are India, China, USA, Saudi Arabia, Thailand, and Germany. Some use it for making jewelry and ornaments, others use it in the production of electronics or as a store of value.

Major Reports to Watch

Gold Demand Trend Reports, released every quarter.

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Silver

This is another metal with diverse uses.

About the Silver Market

Silver is a precious metal traded on most metal commodity exchanges in the world. The silver market attracts different players — speculators, fund managers, producers, refiners, and end-users. While speculators trade silver to make money, fund managers use it for hedging and diversification. Being a

quality conductor, silver is also used in many industrial products, especially electronics.

Seasonality

The price tends to trend higher in the first and last quarters of the year. In the second and third quarters, performance is poor.

How to Trade Silver

You can trade silver through the commodity futures market or options on silver futures.

Another way to invest in silver is by buying funds that track silver, or silver miners:

• the iShares Silver Trust (SLV)
• iShares MSCI Global Silver Miners ETF (SLVP)
• Global X Silver Miners ETF (SIL).

There’s also the option of investing in stocks of companies that mine or refine silver. Trading silver CFD is an option too.

The Exchange where Silver Trades

Silver trades on most metal commodity exchanges, including COMEX, Tokyo Commodity Exchange, London Metal Exchange, and theCBOT.

Where Silver Is Mostly Produced

It is mostly produced in the following countries: Mexico, Peru, China, Russia, Poland, Australia, Kazakhstan, Chile, Bolivia, and the US.

Where Silver Mostly Consumed

The major consumers are the United States, China, Japan, India, Germany, Italy, Thailand, UK, and Belgium. They use silver for industrial purposes, as well as jewelry production.

Reports to Watch

Quarterly demand reports, stocks and depository statistics.

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Platinum

This is mostly an industrial metal but also seen as a precious metal.

About the Platinum Market

Valued at about $8 billion, the platinum market is smaller than those of silver and gold. Platinum is used as a catalyst in a vehicle, as well as in making jewelry, ornaments, and dental items. The platinum market attracts speculators, producers, and end-users.

Seasonality

Platinum performs better in the first and last quarters of the year than in the second and third quarters.

How to Trade Platinum

You can trade platinum directly through platinum futures and options.

Another method is to invest in platinum ETFs like GraniteShares Platinum Trust (PLTM) and ETFS Physical Platinum Shares (PPLT). Alternatively, you can buy stocks of platinum mining companies.

The Exchanges Where Platinum Trades

They include the CBOT, Tokyo Commodity Exchange, and COMEX.

Where Platinum is Mostly Produced

Platinum is mostly produced in South Africa, Russia, Zimbabwe, Canada, and the US.

Where Platinum is Mostly Consumed

The major consuming nations are China, US, Germany, UK, Japan, Belgium, and France

Reports to Watch

They include stocks and depository statistics.

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Aluminum

It is a silvery-white, malleable metal. Its lightweight and soft nature make it very useful in making a wide variety of products, including airplane parts, roofing sheets, cables and wires, kitchen utensils, foils, plate, and window frames.

About the Aluminum Market

As of 2016, the aluminum market is valued at $143.87, and it is projected to be growing at a rate of 6.4%. About 60% of the world aluminum demand is coming from the Asia Pacific region. Apart from manufacturing and construction companies that dominate the aluminum market, alongside the producers/miners, there are speculators who try to benefit from price fluctuations.

Seasonality

Aluminum tends to perform better in the spring and summer, especially in the months of May, June, and July, but it does poorly in the fall and winter.

How to trade Aluminium

Trading can be done directly through aluminum futures and options, but it is also possible to invest through aluminum ETFs, such as Pure Beta Aluminum ETN (FOIL) and iShares U.S. Basic Materials Sector Index Fund (IYM).

Where Aluminium Trades

Aluminum trades majorly on the London Metal Exchange, Shanghai Futures Exchange, Multi Commodity Exchange, and the COMEX.

Where Aluminium Is Mostly Produced

The nations with the largest production of aluminum are China, Russia, Canada, UAE, India, United States, and Australia.

Where Aluminium Is Mostly Consumed

China is, by far, the largest consumer of aluminum. Other large consumers include Europe, North America, and Asia.

Reports to Watch

They include monthly ALI Report and stocks delivery reports.

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Steel

Owing to its high tensile strength and relatively low cost, steel is used in constructing buildings, bridges, heavy tools, ships, automobiles, weapons, and other appliances. Steel is an alloy of iron and carbon, and it is in high demand all over the world because of the rapid industrialization and urbanization going on in China, India, and other emerging economies.

About the Steel Market

As of 2017, the global steel market is valued at $2.5 trillion. Although the market is dominated by real physical players — the producers, construction industry, and other users, there are still speculators in the market.

Seasonality

There is no apparent seasonality in steel, but demand for steels tends to rise in the first quarter of the year, peaking around the month of April.

How to Trade Steel

You can trade steel via steel options and futures contracts. Alternatively, you may invest in a steel ETF, such as the Market Vectors Steel ETF (SLX). The SLX tracks NYSE Arca Steel Index.

Where Steel Trades

Steel trades on the London Steel Exchange, Dalian Commodity Exchange, Tokyo Commodity Exchange, and the COMEX.

Where Steel Is Mostly Produced:

The largest producers of steel in the world are China, India, Japan, US, and South Korea.

Where Steel Is Mostly Consumed:

China, India, and other emerging economies need lots of steel to drive their industrialization process. Other top steel consumers include the US, Japan, Russia, South Korea, Germany, and Turkey.

Reports to Watch

One of the reports to watch for is the Monthly Ferrous Metal Report.

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Copper

This metal is one of the most common metals on our planet. Reddish-orange in color, copper is one of the first metals to be used by humans. With wonderful physical properties (malleable and conducts electricity and heat), this element is suitable for a wide range of industrial uses — roofing, electric wiring, plumbing, and industrial machinery.

About the Copper Market

The copper market is the third-largest metal market, after gold and silver markets, and just like other commodity markets, it attracts producers, industrial users, fund managers, and speculators.

Seasonality

Copper tends to perform better in the first and second quarters of the year than in the third and fourth quarter.

How to trade Copper

The direct way to trade copper is through copper futures and options contracts.

An alternative way is to trade copper-linked ETFs, such as the United States Copper Index Fund (CPER) and iPath Series B Bloomberg Copper Subindex Total Return ETN (JJC). You can also trade copper CFDs.

Where Copper Trades

Copper trades on most commodity exchanges in the world, including the COMEX, London Metal Exchange, Multi Commodity Exchange, Shanghai Futures Exchange, and Tokyo Commodity Exchange.

Where Copper is Mostly Produced

The top producers of copper in the world are Chile, China, Peru, United States, DR Congo, Australia, and Russia.

Where Copper Is Mostly Consumed

China consumes about 49% of the total refined copper in the world. Other Asian nations account for 20%; Europe accounts for 18%, Americas consume about 12%, while Africa and Oceania account for 1%.

Reports to watch

They include the Industrial Metals Report and Delivery Notices and Stocks Reports.

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Nickel

This is one of the most widely used industrial metals in the world because of its numerous favorable physical and chemical properties, such as high tensile strength, ductility, corrosion resistance, and high melting point. It is lustrous and has good magnetic and catalytic properties.

Nickel is used in producing stainless steel, which is used in making cookware, cutlery, industrial equipment, automotive trim, and pipes and storage vessels for corrosive liquids. It works as a catalyst in many chemical reactions. It’s also used in making rechargeable batteries.

Seasonality

Nickel prices tend to rise in winter and decline in summer.

How to Trade Nickel

You can trade nickel futures or options contracts. Alternatively, you can buy ETFs that track nickel prices, such as the iPath Pure Beta Nickel ETN (NINI) and the iPath Dow Jones-UBS Nickel ETN (JJN). Another option is to buy nickel CFDs.

The Exchanges Where Nickel Trades

They include the London Metal Exchange (LME) and the

Multi Commodity Exchange.

Where Nickel Is Mostly Produced

The biggest producers include Indonesia, the Philippines, Canada, Australia, Russia, Brazil, New Caledonia, and China.

Where Nickel Is Mostly Consumed

The top consumers are China, USA, Japan, South Korea, Germany, Italy, and Taiwan.

Reports to Watch

The Nickel Market Outlook.

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Lead

Lead has been in use since the ancient Egyptian civilization. It is a dense and soft metal, with a low melting point. Lead is majorly used in producing batteries. Owing to its high density, lead is used in building walls to protect against radioactive waves, such as the X-ray rooms in hospitals.

It is also used in making industrial pipes due to its corrosion-resistant properties. About 5 million metric tons of lead are mined yearly, and another 6 million metric tons are produced from recycling.

Seasonality

Lead prices tend to decline in the first and last quarters, and increase in the second and third quarters of the year.

How to trade Lead

The most direct way to get involved in the lead market is by trading lead futures or options contracts. ETFs that track lead prices, such as the iPath Dow Jones-UBS Lead ETN (LD) and the iPath Pure Beta Lead ETN (LEDD), are also good investment options. You can also trade lead CFDs.

The Exchanges Where Lead Trades

They include the LME and COMEX.

Where Lead Is Mostly Produced

The biggest producers are China, Australia, USA, Peru, Mexico, Russia, India, and Bolivia.

Where Lead Is Mostly Consumed

Top consumers include China, USA, India, South Korea, Germany, Japan, Spain, and Italy.

Reports to Watch

The Monthly Global Lead Short-term Outlook and the Quarterly Lead Metal Market Report.

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Lithium

This is a very soft and silvery-white alkali element. It has unique physical properties — it is the lightest metal known to mankind, and it’s very low in density. As a result, a large chunk of it can be packed into a small space, making it very valuable in making batteries for compact devices, like laptops, phones, and other digital devices. It is also becoming important in making electric cars.

Lithium is usually mined from igneous rocks, such as pegmatite and petalite. Owing to the demand for electric vehicles, lithium is becoming a very important global commodity.

Seasonality

Prices tend to increase during the first and third quarters of the year.

How to trade Lithium

You cannot directly trade lithium, but you can invest in the stocks of companies involved in the lithium industry, such as Albemarle Corporation (ALB) and FMC Corp. (FMC). Another option is to invest in a lithium ETF or an index fund, such as the Global X Lithium & Battery Tech ETF (LIT) or the BITA American Lithium and Battery Metals Giants Index (BALITG).

The Exchanges Where Lithium Trades

Lithium does not trade as a commodity on any futures and options exchange.

Where Lithium Is Mostly Produced

Top producers include Australia, Chile, Argentina, China, Zimbabwe, Portugal, and Brazil.

Where Lithium Is Mostly Consumed

The biggest consumers are the US, China, Germany, Russia, and India.

Reports to Watch

the Quarterly Lithium Market Update and the Lithium Demand Reports.

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Energy

Energy is a very important part of the commodity market. There are many commodities that fall under the energy sector, but here, we will be discussing the following:

• Crude oil
• Gasoline
• Natural gas
• Coal
• Heating Oil

Crude Oil

Arguably the most important commodity in the world, crude oil is used in many areas of the economy. It is used in the transportation industry: cars, trains, ships, and jets. It is also used in the production of synthetic textiles, computer hardware, plastics, fertilizers, cosmetics, and many others.

There are different varieties of crude oil, based on the physical characteristics and geographical location. The two most common varieties are the Brent Crude and West Texas Intermediate, which is also known as light sweet crude. Other varieties include the Forties, Oseberg, and Ekofisk crudes.

About the Crude Oil Market

The crude oil market is very huge, directly involving governments of various nations, such as Russia, Iran, and OPEC countries, which includes Saudi Arabia and Nigeria. Aside from the countries and corporations in the market, speculators make up a great percentage of the players in the crude oil market.

Seasonality

Crude oil prices tend to slide in the last quarter of the year. The first three quarters seem to perform much better than the last quarter.

How to Trade Crude Oil

Obviously, you can directly play the crude oil market by trading crude oil contracts in the futures and options markets. But you can also trade it via crude oil ETFs, like the United States Oil Fund (USO), Invesco DB OIL Fund (DBO), ProShares Ultra Bloomberg Crude Oil (UCO), and VelocityShares 3x Long Crude Oil ETN (UWT). Trading crude oil CFDs is possible too.

The Exchanges Where Crude Oil Trades

The major exchanges where crude oil trade include the Intercontinental Exchange (ICE) and NYMEX, a member of the CME Group.

Where Crude Oil Is Mostly Produced

Crude oil is produced in many countries around the globe, but the top 10 producers include the US, Saudi Arabia, Russia, Canada, China, Iraq, Iran, UAE, Brazil, and Kuwait.

Where Crude Oil is Mostly Consumed

The nations that consume crude oil the most are the US, EU, China, India, Russia, Saudi Arabia, and Japan

Reports to Watch

They include the Weekly Petroleum Status Report, Daily reports of Delivery Notices and open interests

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Gasoline

Mostly used as fuel for cars, motorcycles, and light-duty trucks, gasoline directly affect road transport systems. The price of gasoline can have huge effects on the economy because people need it to fuel their vehicles to attend to essential duties like going to work, school, or hospitals. In some places, gasoline is also used for emergency power supply — gasoline generators.

About the Gasoline Market

The players in the gasoline market include the crude oil refiners, the gasoline distributors, and of course, the speculators. Some of the speculator trade the differences between crude oil prices and the prices of refined products (gasoline) — crack spreads.

Seasonality

Gasoline prices seem to increase during the summer months and decline during the fall and winter periods. The reason may not be unconnected to the increased demand due to family vacations in summer.

How to Trade Gasoline

One way to trade gasoline is by trading futures and options contracts on gasoline. An alternative will be to trade gasoline ETFs, such as the United States Gasoline Fund (UGA).

Where Gasoline Trades

The major exchanges where gasoline is traded include the ICE, NYMEX, and Tokyo Commodity Exchange.

Where Gasoline is Mostly Produced

Any country that has a functional refinery does produce gasoline. The biggest producers are the US, China, Japan, Russia, India, Canada, and Brazil.

Where Gasoline is Mostly Consumed

Top consumers of gasoline are the US, China, Japan, Russia, India, and Canada.

Reports to Watch

They include Reformulated Gasoline and Anti-Dumping Batch Report, Reformulated Gasoline and Anti-Dumping Quarterly Summary, and Reformulated Gasoline and Anti-dumping Annual Compliance Designation

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Natural Gas

The natural gas is considered a pretty clean energy source, and the demand for it has increased in recent times. It is mainly used for electricity generation, but has other commercial applications, including transportation — there are cars that run on natural gas. As with any other commodity market, the stakeholders in the industry are not the only players in the natural gas market — a great number of traders in the market for speculation.

Seasonality

There are changes in the storage and demand for natural gas according to the seasons of the year. Demands increase in winter and decline in summer due to heating demands. Conversely, storage levels tend to increase before winter and reduce by the end of winter due to increased consumption during winter.

How to Trade Natural Gas

You can directly trade natural gas futures and options contracts. Another option is to trade natural gas ETFs, such as the VelocityShares 3x Long Natural Gas (UGAZ), VelocityShares 3x Inverse Natural Gas (DGAZ), )ProShares Ultra Bloomberg Natural Gas (BOIL), and the United States Natural Gas Fund (UNG).

Where Natural Gas Trades

The major exchanges for natural gas are the CME Group, ICE, Shanghai Petroleum and Natural Gas Exchange, and Tokyo Commodity Exchange.

Where Natural Gas Is Mostly Produced

The top producers of natural gas are the United States, Russia, Iran, Qatar, Canada, and China. Many of these countries have huge reserves of natural gas, with Russia alone accounting for about 25% of the entire world natural gas reserve.

Where Natural Gas is Mostly Consumed

Natural gas is mostly consumed in the US, EU, Russia, China, Japan, Canada, Iran, and Saudi Arabia.

Reports to Watch

One important report to watch is the EIA’s Weekly Natural Gas Storage Report.

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Coal

This is a fossil fuel formed by the biological and geological processes on dead plant matter over millions of years. It has been used as a source of energy since the early civilizations, but the demand for it increased with the industrial revolution.

Coal contributes a significant portion to the world’s energy supply, and it’s also used for many other purposes. Despite the call for renewable energy, the coal market is still very huge. Players in the market include the producers, electricity firms, and of course, speculators.

Seasonality

Prices tend to increase during the winter months.

How to Trade Coal

You can trade coal futures or options contracts. Alternatively, you can invest in coal ETFs, such as VanEck Vectors Coal ETF (KOL). You can also invest in stocks of coal companies or trade coal CFDs.

The Exchanges Where Coal Trades

They include the CME Group and ICE.

Where Coal Is Mostly Produced

The biggest producers include China, USA, India, Australia, and New Zealand.

Where Coal Is Mostly Consumed

The top consumers are China, USA, India, Japan, Southeast Asian nations, and the EU.

Reports to Watch

They include the Coal Market Outlook and the Annual Global Coal Demand Forecast.

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Heating Oil

Widely used in furnaces and boilers to heat peoples’ homes and commercial buildings, heating oil is an alternative to natural gas and propane. It is mostly used in places where propane and natural gas are lacking, such as certain parts of the UK, the Northeastern parts of the US, and many other parts of the world.

Heating oil is the second important product derived from crude oil. It has low viscosity but as highly inflammable as gasoline. The market is huge and attracts a lot of speculators, as well as the major stakeholders who come to hedge risk.

Seasonality

Normally, prices are expected to rise ahead of the cold winter season and fall during the warm summer season, but in reality, heating oil prices tend to peak in late winter and beginning of spring and declines during late fall and beginning of winter.

How to trade Heating Oil

You can trade heating oil futures contracts or options on futures contracts. Alternatively, you can invest in heating oil ETFs, but there’s none in the U.S. market. However, there is a heating oil ETC in the London market — ETFS Heating Oil (HEAT)

The Exchanges Where Heating Oil Trades

They include the ICE and NYMEX.

Where Heating Oil Is Mostly Produced

The biggest producers are the US, China, India, Russia, Germany, Japan, Korea, and Brazil.

Where Heating Oil is Mostly Consumed

Top consumers include the United States, Great Britain, Canada, Russia, Republic of Ireland and Northern Ireland.

Reports to Watch

They include the Monthly Oil Market Report, the EIA’s Weekly Petroleum Status Report, and the Weekly Heating Oil and Propane Report.

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Livestock and Meat

We need protein to maintain good health, and livestock is one of the main sources of protein for over 7 billion people on our planet. The following are the major commodities in this group:

Feeder Cattle

These are calves that have reached a weight of about 600 to 800 pounds after weaning. They only need to be fattened up with a high energy diet prior to slaughter. Normally, cattle are slaughtered to produce beef when they weigh between 1200 and 1400 pounds.

The world consumes about 60 million metric tons of beef per annum, so the feeder cattle market is quite big. The players in the market include farmers, distributors, retailers, consumers, and speculators.

Seasonality

The market tends to perform better in the spring and summer than in the fall and winter seasons.

How to trade Feeder Cattle

You can trade feeder cattle futures or options on feeder cattle futures. Alternatively, you can trade ETFs, but there is no ETF that specifically track feeder cattle. However, there are three ETFs that track livestock in general, and they include:

• iPathA Series B Bloomberg Livestock Subindex Total Return ETN (COW)
• UBS ETRACS CMCI Livestock Total Return ETN (UBC)
• iPath Pure Beta Livestock ETN (LSTK).

Another way to speculate on feeder cattle is through CFDs on feeder cattle.

Where Feeder Cattle Trades

The main exchange for feeder cattle is the CME Group.

Where Feeder Cattle Is Mostly Produced:

The top producers include the US, Brazil, EU, China, India, Argentina, Mexico, Pakistan, Turkey, and Russia.

Where Feeder Cattle is Mostly Consumed:

Beef is consumed all over the world, and the top consumers include the US, China, Brazil, EU, Argentina, India, Mexico, Pakistan, and Russia.

Reports to Watch

They include the National Feeder and Stocker Cattle Summary Reports.

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Lean Hogs

They are the major source of pork in the US and possibly the rest of the world. Pork is the most consumed animal protein in the world, with consumption exceeding 100 million metric tons annually.

The lean hog market attracts farmers and companies involved in the production, distribution, and sale of pork products, who come to the market to hedge risk. Of course, traders do speculate in the lean hog market as well.

Seasonality

Lean hog prices tend to increase between May and July, which is the usual grilling season in the US.

How to Trade Lean Hogs

You can trade lean hog futures and options, but you can also invest lean hog ETFs, such as the .iPath Pure Beta Livestock ETN (LSTK)

 Where Lean Hogs Trades:

Lean hogs futures contracts trade on the CME and can be traded from anywhere around the world via the CME Globex platform.

Where Lean Hog is Mostly Produced

Top producers include China, EU, US, Brazil, Russia, Vietnam, Canada, and Mexico.

Where Lean Hog is mostly consumed:

This includes China, USA, EU, Canada, Russia, and Brazil.

Reports to Watch

Quarterly Hogs and Pigs Report, the CME Lean Hog Index, and Daily Hog and Pork Summary.

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Pork Bellies

Pork belly is a portion of fatty meat from the belly of a pig. It is very popular in Chinese and Philippine cuisine. In the US, pork belly is used to make bacon. Introduced in 1961, pork belly was the first livestock traded on the CME. Trading in pork belly futures was initially suspended in 2011 but has been reintroduced.

Seasonality

Pork belly tends to perform better between May and July, which is usually a grilling season in the US.

How to trade Pork Bellies

You can trade pork belly futures. Alternatively, you can trade an ETF, but since there’s no pork belly ETF, you could choose to trade the lean hog ETF — ETFS Lean Hogs (HOGS).

The Exchanges Where Pork Bellies Trade

Pork belly futures contracts have been reintroduced on the CME in May 2019.

Where Pork Bellies are Mostly Produced

Major producers are China, EU, US, Brazil, Russia, Vietnam, Canada, and Mexico.

Where Pork Bellies are Mostly Consumed

China, US, EU, Canada, Russia, and Brazil.

Reports to Watch

Daily Pork Reports and Quarterly Hogs and Pigs Report.

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Live Cattle

These are cattle that have reached the right size and weight for slaughter. Normally, they weigh about 1,200 to 1,400 pounds. Cattle are slaughtered for beef and other by-products, such as liver, kidneys, and tongue. The economic impact of beef is in trillions of dollars, and the live cattle market is a major contributor.

Seasonality

Seasonality trends in live cattle supply and demand are affected by many factors, such as when breeding, and calving, as well as holiday seasons — summer barbeque season and Easter celebrations.

How to Trade Live Cattle

Trading live cattle can be through live cattle futures or options on live cattle futures. An easier way may be to trade livestock ETFs, such as

• iPathA Series B Bloomberg Livestock Subindex Total Return ETN (COW)
• UBS ETRACS CMCI Livestock Total Return ETN (UBC)
• iPath Pure Beta Livestock ETN (LSTK).

You can also buy shares of live cattle companies or trade live cattle CFDs.

The Exchanges Where Live Cattle Trades

The CME is the main exchange for the live cattle market.

Where Live Cattle Is Mostly Produced

As with the feeder cattle, the top producers include the US, Brazil, EU, China, India, Argentina, Mexico, Pakistan, Turkey, and Russia.

Where Live Cattle Is Mostly Consumed

The top consumers of beef include the US, China, Brazil, EU, Argentina, India, Mexico, Pakistan, and Russia.

Reports to Watch

the monthly Cattle on Feed Report from the U.S. Department of Agriculture (USDA).

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Agricultural and Softs

There are many agricultural commodities, but we will be discussing the following:

• Corn
• Soybeans
• Wheat
• Barley
• Canola
• Cocoa
• Sugar
• Coffee
• Orange Juice
• Palm Oil
• Soybean meal
• Soybean oil
• Rough Rice
• Cotton
• Lumber
• Rubber
• Wool

Corn

Corn is one of the earliest commodities to trade in an organized commodity exchange. It is very important to the global economy, serving as a source of food for both humans and livestock. It is also used in the production of ethanol fuel. In the US where sugar is very expensive, corn is becoming a key source of sweetening products.

Seasonality: Expectedly, during the planting seasons (spring), corn prices increase because supply is not enough. Conversely, supply increases during harvest (fall) and drags prices down.

How to trade it: You can trade corn futures and options on corn futures. Alternatively, you can trade corn ETFs, such as the Teucrium Corn Fund (CORN).

The exchanges where it trades: Corn trades on the CBOT, Euronext, and the Tokyo Grain Exchange (TGE).

Where it is mostly produced: The top producers of corn include USA, China, Brazil, India, Argentina, and Ukraine

Where it is mostly consumed: The countries that consume the most corn are the US, China, Brazil, Argentina, and Ukraine.

Reports to watch: USDA Monthly Supply and Demand, Weekly Export Sales, Quarterly Hogs and Pigs, and Cattle on Feed.

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Soybeans

This is an important part of the global food supply. Mashed soybeans is a great food for livestock. The oil gotten from soybeans is used in making salad dressings, cookies, cakes, and bread.

Seasonality

With reducing supply during the planting season in spring, soybean prices increase. During harvest in the fall, prices decline as a result of increased supply.

How to trade Soybeans

Soybeans can be traded through the soybeans futures contracts and options on futures. Another way to trade it is by investing in a soybeans ETF such as the Teucrium Soybean Fund (SOYB).

The Exchanges Where Soybeans Trade

Soybeans trade on the CBOT and Euronext.

Where Soybeans are Mostly Produced

Top producers include the US, Brazil, Argentina, China, India, Paraguay, and Canada.

Where Soybeans are Mostly Consumed

The highest consumers include China, USA, Argentina, Brazil, India, Paraguay, and Russia.

Reports to Watch

The World Agricultural Supply and Demand Estimates Report (WASDE), USDA Monthly Supply and Demand Review, and Weekly Export Sales.

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Wheat

Wheat is the second most-consumed grain in the world, after rice. It has been an important food source since the early civilizations. Wheat is usually made into flour and used in making bread, noodles, pasta, biscuits, cakes, muffins, snack foods, and others. Farmers, corporations, and speculators make up the wheat market.

Seasonality

In the fall, during the planting period, the prices of wheat increase due to shortage of supply. The prices decline during the next summer when there’s improved supply following harvest.

How to Trade Wheat

You can trade wheat through the wheat futures and options markets. Alternatively, you may trade wheat ETFs, such as the Teucrium Wheat Fund (WEAT). Trading wheat CFDs is another option.

The Exchanges Where Wheat Trades

They include the Tokyo Grain Exchange, CBOT, and Euronext.

Where Wheat Is Mostly Produced

Top producers include China, India, Russia, US, and France.

Where Wheat Is Mostly Consumed

China, India, Russia, USA, and France.

Reports to Watch

Monthly WASDE Reports and Quarterly Grain Stocks.

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Barley

Barley is an important grain that has been consumed since the early civilizations. It is the fourth most consumed grain, after rice, wheat, and corn. Barley is mostly used for human food, livestock feed, and malt production. In fact, about three-quarters of all the barley produced in the world are used for human food and brewery purposes. The rest is used as fodder.

Over 145 million tons of barley are consumed in the world every year, and the market value is in billions of dollars. As a derivative, barley is the second most traded coarse grain in the global market, after corn. The players in the barley market include farmers, brewery corporations, speculators, and others.

Seasonality

Barley doesn’t show much seasonality, but during the planting seasons, the prices of barley tend to increase due to shortage of supply. After harvest, prices tend to decline because there’s more supply.

How to trade Barley

You can trade barley futures and options contracts, or you trade barley CFDs. ETFs would be another option, but they’re no ETFs on barley — though, you can invest in ETFs that invest generally in grains, such as the MLCX Grains ETN (GRU) and iPath Series B Bloomberg Grains Subindex Total Return ETN (JJG).

The Exchanges Where Barley Trades

They include the ICE, Sofia Commodity Exchange in Bulgaria, and Multi Commodity Exchange of India.

Where Barley Is Mostly Produced:

Some of the top producers of barley are the EU, Russia, Ukraine, Canada, Australia, and the US.

Where Barley Is Mostly Consumed:

The top consumers include the EU, Russia, China, Saudi Arabia, Turkey, and Canada.

Reports to Watch

They include the Grain Market Report, Monthly WASDE Report, and Malt Barley Monthly Reports.

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Canola

Canola is known mainly for its oil, which has the lowest amount of saturated fat of any cooking oil in the market. The oil is not only used for cooking but also used for baking and other food processing purposes. In addition, it is used in the production of biodiesel and bio-plastics.

The canola meal, the leftover product after the canola oil has been extracted, is used in livestock feed, pet food, and fertilizer production. So, the canola seed is a very economically valuable commodity and one of the world’s most important oilseed crops.

Seasonality

Prices tend to decrease in the summer as supply improves, but during the winter and spring months, prices tend to go up.

How to Trade Canola

You can trade canola futures and options contracts. There are no ETFs that play purely canola, but the United States Agricultural Index Fund (USAG) has canola on its list of agricultural commodities.

The Exchanges Where Canola Trades

The major exchange where canola is traded is the ICE.

Where Canola Is Mostly Produced

The top producers of canola seeds are the EU, Canada, China, India, and Australia.

Where Canola Is Mostly Consumed

Top consumers include the EU, China, India, and the US.

Reports to Watch

The monthly Oil Crops Outlook, the monthly WASDE at a Glance, and Oil Crops Yearbook Tables

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Cocoa

The cocoa seed is a very important agricultural commodity used in making chocolates, ice creams, drinks, cakes, and toppings. It is also used in the production of certain alcoholic drinks, such as brandy. The potash from cocoa pod husk is used in soap production.

Growing at a CAGR of 3.4%, the value of the global market for cocoa is expected to hit over $14.5 billion in the next five years.

Seasonality

Prices tend to increase around June and July but decrease around October — the main harvest season.

How to Trade Cocoa

A direct way to trade cocoa is through the futures and options market, but you can also invest in cocoa ETFs, such as the iPath Dow Jones-UBS Cocoa ETN. Trading cocoa CFDs is an option too.

The Exchanges where Cocoa Trades

The main exchanges for cocoa futures are the New York Board of Trade and London International Financial Futures and Options Exchange, both of which belong to the ICE.

Where Cocoa Is Mostly Produced

Top producers include Ivory Coast, Ghana, Indonesia, Nigeria, Cameroun, Brazil, Ecuador, and Mexico.

Where Cocoa Is Mostly Consumed

The biggest consumers are the US, EU countries, and Canada

Reports to Watch

Global Cocoa Market Report, ICCO Monthly Review, and ICCO Annual Reports.

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Sugar

Commonly used as a sweetener, sugar is also very important in the production of ethanol fuel. As a sweetener, sugar is used in baking cakes, making chocolates, and preserving jams and jellies.

Seasonality

Prices tend to increase in fall and winter and decline during the spring and summer months.

How to Trade Sugar

Trading sugar can be through sugar futures and options, but you can also trade sugar ETFs, such as the iPath Pure Beta Sugar ETN (SGAR), Teucrium Sugar Fund (CANE), and iPath DJ-UBS Sugar TR Subindex ETN (SGG). Alternatively, you can trade sugar CFDs.

The Exchanges Where Sugar Trades

They include the Multi Commodity Exchange, Zhengzhou Commodity Exchange, CME Group, and ICE.

Where Sugar Is Mostly Produced

Top producer include Brazil, India, China, Thailand, Pakistan, Mexico, and Colombia.

Where Sugar Is Mostly Consumed

Top Consumers are the US, Germany, Netherlands, Ireland, and Australian.

Reports to Watch

The monthly WASDE Reports, monthly Sugar and Sweeteners Outlook, and Sugar and Sweeteners Yearbook Tables.

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Coffee

The impact of the coffee industry on the economy is enormous. In the US, the coffee industry is responsible for about 1.7 million jobs and accounts for over 1.6% of the GDP. Globally, the demand for coffee has been increasing, as more people develop a taste for caffeine.

Seasonality

Prices tend to decline from the end of May to July when coffee is being harvested in the Northern Hemisphere.

How to Trade Coffe

You can trade coffee futures and options, and you can also trade coffee ETFs, such as the iPath DJ-UBS Coffee Total Return Subindex ETN (JO) and iPath Pure Beta Coffee ETN (CAFÉ). Another option is to trade coffee CFDs.

The Exchanges where Coffe Trades

They include the ICE and CME Group.

Where Coffe Is Mostly Produced

Top coffee producers are Brazil, Vietnam, Colombia, Indonesia, and Honduras.

Where Coffe Mostly Consumed

Top consumers on per capita basis are Finland, Norway, Iceland, Denmark, and the Netherlands.

Reports to Watch

Biannual World Market and Trade Report.

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Orange Juice

Popularly known as frozen concentrated orange juice(FCOJ), orange juice was first introduced into the soft commodity market in the 1940s, so it is relatively new. The FCOJ futures helps farmers and producers to hedge against price fluctuations, and fruit juice companies also use the market to secure regular supply.

However, because of the volatility in the market, it has also become popular among speculators. The robust trading activities in the FCOJ market helps in price discovery for the multi-billion dollar orange juice market.

There are also other types of orange juices, such as the reconstituted liquid juice and the not-from-concentrate (NFC) juice, but the FCOJ is the benchmark commodity for the orange juice industry.

Seasonality

There is no apparent seasonality in the orange juice market, but climatic changes tend to affect productivity.

How to Trade Orange Juice

You can trade FCOJ futures or options contracts. There is no ETF that tracks the FCOJ, but you may invest in the ELEMENTS Rogers International Commodity Agriculture Total Return ETN, which has orange juice in its holdings.

The Exchanges Where Orange Juice Trades

The major exchange for orange juice is the ICE.

Where Orange Juice Is  Mostly Produced

The top producers include Brazil, USA, Mexico, European Union, China, and South Africa.

Where Orange Juice Is Mostly Consumed

The biggest consumers are the US, China, Canada, Japan, Brazil, Australia, and Russia.

Reports to Watch

They include the USDA’s Bi-annual Citrus Reports on World Production, Markets, and Trade, as well as the Brazil Semi-annual Reports.

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Palm Oil

Palm oil is a cost-effective and multipurpose vegetable oil that is used in many parts of the world, especially African and Asia. It is the most commonly utilized vegetable oil in the world, as it is used in a wide range of product, such as soaps, lotions, margarine, washing powders, baked foods, and sweets. It is also used in the production of biofuel.

As of 2015, the palm oil market is valued at $65.73 billion, but with a CAGR of 7.2%, it is expected to hit $92.84 billion by 2021. The players in the market include farmers, producers, cosmetic companies, and speculators.

Seasonality

There are no apparent seasonal effects in the palm oil market, but changes in the climate can affect palm oil production.

How to Trade Palm Oil

You can trade palm oil futures and options on futures. Alternatively, you can invest in ETFs that invest some of their money in palm oil, such as the iShares MSCI Malaysia Index Fund (EWM) and iShares MSCI Indonesia ETF Fund (EIDO). 

The Exchanges where Palm Oil Trades

They include the CME and the iShares MSCI Malaysia Index Fund (EWM)

Where Palm Oil Is Mostly Produced

The biggest producers include Indonesia, Malaysia, Thailand, Colombia, and Nigeria.

Where Palm Oil Is Mostly Consumed

Top consumers are Indonesia, India, the EU, China, Malaysia, Pakistan, and Thailand.

Reports to Watch

Malaysia Palm Oil PSD Revisions and Indonesia Oilseeds and Products Update.

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Soybean Meal

Soybean meal is the part left after soybean oil has been extracted. It is used in food and animal feeds as protein supplements. Some of the products of soybean meal consumed by humans include soy milk, soy flour, soy protein, tofu, and several retail products. However, most of the soybean meal go into livestock and fish feed production.

Seasonality

Prices are higher during the planting season and decline during the harvest season.

How to Trade Soybean Meal

You can buy soybean meal futures. There’s no soybean meal ETF, but you can trade soybeans ETF — Teucrium Soybean Fund (SOYB).

The Exchanges Where Soybean Meal Trades

At the CME Group and Dalian Commodity Exchange.

Where Soybean Meal is Mostly Produced

The biggest producers of soybean meal are China, USA, Argentina, Brazil, EU, India, Mexico, and Russia.

Where Soybean Meal Is Mostly Consumed

The top consumers are China, USA, EU, Brazil, Mexico, and India.

Reports to Watch

the World Agricultural Supply and Demand Estimates Report (WASDE).

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Soybean Oil

This is a vegetable oil gotten from processing the seeds of soybeans. Soybean oil is one of the commonly consumed cooking oil. Being a drying oil, it can be used as a base for making oil paints and printing inks (soy ink).In addition, it is very useful in the production of biofuels.

Seasonality

Soybean oil prices tend to rise in the first and last quarters of the year and decline in the second and third quarters.

How to trade Soybean Oil

You can trade soybean oil futures or trade soybean oil ETFs, such as the ETFS Soybean Oil Fund (SOYO) and ETFS 2X Daily Long Soybean Oil Fund (LSYO).

The Exchanges Where Soybean Oil Trades

The CME Group and Dalian Commodity Exchange are the two of the largest exchanges were soybean oil is traded.

Where Soybean Oil Is Mostly Produced

The major producers of soybean oil include China, US, Brazil, Argentina, India, Paraguay, and Mexico.

Where Soybean Oil Is Mostly Consumed

The biggest consumers include China, USA, Brazil, India, and Argentina.

Reports to Watch

Some are the monthly Oil Crops Outlook, the monthly WASDE at a Glance, and Oil Crops Yearbook Tables.

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Rough Rice

Rough rice is a term used to describe newly harvested rice that has not been processed. Rice is a staple food in many parts of the world, especially China, India, and Thailand. Because of the population of these nations, rice is the most consumed grain in the world.

Speculators are attracted to the rough rice market because of the size of the rice market. However, the major players are the farmers and the processing companies.

Seasonality

Prices tend to decline in the summer and rise during the fall and winter months.

How to Trade Rough Rice

You can buy rice futures or options contracts, and you can also invest in ETFs. While there is no ETF that tracks only rough rice prices, the ELEMENTS Rogers International Commodity Agricultural ETN (RJA) includes rice in its holdings.

The Exchanges Where Rough Rice Trades

They include the CME Group, the Agricultural Futures Exchange of Thailand (AFET), and the Zhengzhou Commodity Exchange.

Where Rough Rice Is Mostly Produced

The top producers are India, China, Indonesia, Bangladesh, Thailand, Vietnam, Burma, and the Philippines.

Where Rough Rice Is Mostly Consumed

The biggest consumers of rice are China, India, Indonesia, Bangladesh, Vietnam, Philippines, and Thailand.

Reports to Watch

They include the monthly WASDE Reports, the Monthly World Grain Markets and Trade, and the yearly Rice Outlook.

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Cotton

Cotton is an economically important commodity, which is used in several ways. It is the major raw material for many textile products, such as T-shirts, socks, underwear, jeans, towels, shirts, and bedsheets. Apart from textile products, cotton is used to produce tents, coffee filters, fishing nets, and cotton paper, as well as in bookbinding.

Also, the cottonseed is used to produce cottonseed oil, which can be consumed by humans after refining. The leftover cottonseed meal is can serve as food for ruminant animals.

Seasonality

Cotton prices tend to increase in the winter and decline during the spring and summer seasons.

How to Trade Cotton

You can trade cotton futures or options on cotton futures. Alternatively, you can invest in cotton ETFs, such as the iPath Series B Bloomberg Cotton Subindex Total Return ETN (BAL). Another option is to trade cotton CFDs.

The Exchanges where Cotton Trades

They include the ICE and Bolsa der Mercadorias & Futuros.

Where Cotton Is Mostly Produced

Top producers include India, China, USA, Pakistan, Brazil, and Australia.

Where Cotton Is Mostly Consumed

The biggest consumers are China, India, Pakistan, Vietnam, Bangladesh, turkey, and Indonesia.

Reports to Watch

Weekly Cotton Market Report, Monthly Reports, Annual Reports, and Monthly Cotton Price Outlook.

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Lumber

This is the term used to describe wood that has been cut into standard lengths and shapes. Lumber is a very important commodity in the building industry, as well as the furniture-making industry. It is also used for making wooden floors and kitchen cabinets.

Also known as timber, lumber adds more than $600 billion to the world economy, and the lumber market is expected to quadruple by the next 30 years. Players in the timber market include the producers, construction companies, builders, and of course, speculators.

Seasonality

Lumber prices tend to rise during the fall and winter months and fall during the spring and summer seasons.

How to Trade Lumber

One of the most direct ways to trade lumber is by trading lumber futures and options contracts. Alternatively, you can invest in lumber ETFs, such as the iShares Global Timber & Forestry ETF (WOOD) and the ETF (WOOD)

The Exchanges Where Lumber Trades

The CME Group is a major exchange for lumber.

Where Lumber Is Mostly Produced

Top producers include the US, Brazil, Chile, Argentina, Russia, Canada, and the EU.

Where Lumber Is Mostly Consumed

The biggest consumers are China, USA, Russia, Japan, and the European Union.

Reports to Watch

The North America Lumber and Panel Market Weekly Report.

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Rubber

Rubber is a product of latex, which is a white, sticky liquid tapped from a rubber tree. It is used in the production of tires, floor mats, gaskets, dashboard, and other automotive parts.

Since it has insulation properties, rubber is used in making protective gloves, shoes, and blankets, as well as in coating electrical wires.

Seasonality

There are no apparent seasonal changes in rubber prices, but climate changes may affect rubber production.

How to Trade Rubber

You can trade rubber futures contracts. ETFs would have been good options, but there is no ETF that tracks only rubber. However, the ELEMENTS Rogers International Commodity Agricultural ETN (RJA) includes rubber in its basket of commodities.

The Exchanges Where Rubber Trades

They include the Tokyo Commodity Exchange and the Shanghai Futures Exchange.

Where Rubber Is Mostly Produced

The top producers are Thailand, Indonesia, Malaysia, India, China, Vietnam, Philippines, Ivory Coast, Guatemala, and Brazil.

Where Rubber Is Mostly Consumed

The biggest consumers are China, India, United States, Thailand, Japan, and Indonesia.

Reports to Watch

The quarterly Rubber Industry report and the World Rubber Industry Outlook.

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Wool

Wool is a textile fiber gotten from sheep and other animals. It is mostly used in the production of clothes, blankets, upholstery, and carpets. There are other industrial uses for wool, such as insulation, noise control, and in the production of diapers and other baby products.

A sheep can produce up to 30 pounds of wool each year, and about 90% of all the sheep in the world produce some amounts of wool. The wool market is dominated by producers and users, but there are speculators too.

Seasonality

Prices tend to rise in the fall and winter seasons and decline in the spring and summer months.

How to Trade Wool

You can directly trade wool futures contracts. ETFs would have been an investment option, but unfortunately, there is no ETF on wool. Another option is to trade wool CFDs.

The Exchanges Where Wool Trades

The main exchange for wool is the Australian Wool Exchange.

Where Wool Is Mostly Produced

Top producers include Australia, China, the US, New Zealand, Argentina, Turkey, Iran, Britain, India, and Sudan.

Where Wool Is Mostly Consumed

The biggest consumers are China, USA, Japan, India, and the UK.

Reports to Watch

The Australian Wool Market Reports & Selling Roster, the Monthly Market Reports, and the Weekly Price Reports.

Biggest Commodity Exchanges

There are many commodity exchanges in different parts of the world, each focusing on specific commodities. The following are the eight biggest commodity exchanges:

1. CME Group

The CME Group is the largest commodity market in the world, comprising of the CBOT, NYMEX, COMEX, Kansas City Board of Trade (KCBT), NEX Group, and Chicago Mercantile Exchange (CME). It was created in 2007 by the merger between CME and CBOT. Its headquarters is in Chicago, but it has offices in different parts of the world.

The Group offers the widest range of commodities across all the commodity categories, including energy, agricultural and softs, metals, and livestock. Corn, soybeans, wheat, gold, crude oil, natural gas, live cattle, and pork bellies are some of the commodities that trade on the exchange. With its Globex electronic trading platform, traders from any part of the world can access to the commodity market nearly 24 hours a day.

2. Tokyo Commodity Exchange (TOCOM)

The Tokyo Commodity Exchange was formed in November 1984, with the merging of the Tokyo Rubber Exchange, Tokyo Textile Exchange, and the Tokyo Gold Exchange. Although it started with rubber, textile and gold, it has expanded over the years to include aluminum, palladium, gasoline, kerosene, silver, crude oil, corn, and soybeans.

The TOCOM operates an electronic system of trading and offers both futures and options contracts. It is the largest commodity exchange in Japan. Many of the contracts are settled by physical delivery, but cash settlement may also be allowed on certain contracts. Of all the commodities traded on the exchange, gold is the most widely traded.

3. Euronext

Formed in 2000 with the merging of Amsterdam, Brussels, and Paris stock exchanges, the Euronext is the largest stock and commodity exchange in Europe. Its corporate headquarters is at La Défense in Greater Paris, but it operates markets in Brussels, Amsterdam, Lisbon, Paris, Dublin, London, and Oslo. Initially acquired (as a part of the NYSE) by the ICE, it has spun off to exist as an independent exchange.

Euronext is both a stock exchange and a commodity futures exchange, offering products, like commodity trading, equities, ETFs, bonds, warrants and certificates, indices, and derivatives. As of the end of July 2019, the Euronext has about 1500 companies listed on it. The commodities that trade on the exchange include corn, rapeseed, and milling wheat.

4. Dalian Commodity Exchange

The Dalian Commodity Exchange (DCE) is located in Dalian, Liaoning province, China. Established in February 1993 as a non-profit, self-regulating bourse, the DCE provides the biggest liquidity pool of all Chinese commodity exchanges and is the largest futures exchange by volume in the mainland China, according to the Futures Industry Association.

It offers futures and options contracts on a wide range of agricultural and industrial produce, including soybeans, soybean meal, soybean oil, corn, corn starch, egg, RBD palm olein, polyvinyl chloride (PVC), linear low-density polyethylene (LLDPE), polypropylene (PP), coking coal, coke, and iron ore. The DCE is usually open for business Monday to Friday, from 9:00 a.m. to 3:00 p.m. Beijing Local Time. There’s a break from 11:30 a.m. to 1:30 p.m. each day.

5. Multi Commodity Exchange

The Multi Commodity Exchange (MCX) is an Indian commodity exchange based in Mumbai, India. Although it was established in 2003, it is currently the largest commodity derivative exchange in India, with a turnover of more than $250 million as of the third quarter of 2018. The MCX has its own clearinghouse.

It offers futures and options contracts in energy (crude oil and natural gas), bullion, non-ferrous metals (copper, aluminum, lead, zinc, nickel, Brass), and a couple of agricultural commodities such as crude palm oil, cotton, cardamom, menthe oil, kapas, RBD palm olein, castor seed, black pepper, and others. The exchange provides live fees of all traded commodities.

6. Intercontinental Exchange (ICE)

The ICE is an American commodity exchange with global reach. In the beginning, it started with only energy commodities but later expanded to include other commodity categories, such as agricultural and metals. It operates fully electronic trading system.

Founded by Jeffery Sprecher in May 2000, the ICE grew rather rapidly, acquiring many exchanges along the line. With the backing of some of the biggest players in the energy industry, the ICE acquired International Petroleum Exchange, New York Board of Trade, and NYSE-Euronext, but the Euronext has become independent.

Presently, the ICE operates about 23 exchanges and six clearinghouses in many parts of the world. Through these numerous subsidiaries, the ICE offers contracts on different commodities, including, crude oil, natural gas, corn, wheat, soybeans, and others.

7. Africa Mercantile Exchange

The African Mercantile Exchange is an African commodity exchange based in Nairobi, Kenya. Established in 2005, it was the first commodity futures and options exchange in Africa. It has a fully enabled electronic platform, allowing its members to trade their commodities online from anywhere they are.

At the Africa Mercantile Exchange, you can trade a couple of commodities in the energy, metal, and agricultural categories. Gold, oil, coffee, tea, and sugar are some of the commodities you can trade on the exchange. The exchange offers both futures and options contracts and has helped African farmers and producers trade their produce.

8. Uzbek Commodity Exchange

The Uzbek Commodity Exchange is based in Tashkent, Uzbekistan capital city, but it also has a branch office in Shanghai, China. It was established on the 9^th of April 1994 as an open joint-stock company, registered with the Ministry of Justice of the Republic of Uzbekistan. It operates electronic trading system.

At the exchange, you can trade petroleum products, LPG, agricultural produce, steel and other construction materials, mineral fertilizers, livestock feed, cotton fiber and lint, chemical products, and non-ferrous metals. The exchange is open for trading Monday to Friday, from 9:00 to 18:00 local time. There’s a lunch break from 13:00 to 14:00 every day.

Commodity Price Indexes

A commodity price index is an index that tracks the prices of a basket of commodities to measure their performance. It is either a simple average or a weighted average of the prices of the selected commodities, and the prices may be based on spot or futures prices. It may be designed to represent the broad commodity asset class or a particular category of commodities, such as agriculture, metals, or energy.

Index funds that track these commodity indexes are normally traded on the exchanges, so investors can use them to gain passive access to the commodity market, without directly trading commodity futures contracts. The value of a commodity index fluctuates as a result of the price movement of the underlying commodities, and the fluctuations present tradable opportunities, just like stock index futures.

Unlike stock and bond index funds, whose total returns are from capital gain and dividends or interests, the returns of a commodity index fund are only from capital gains, as commodities do not pay dividends or interests.

Since commodity index funds have a negative correlation with other asset classes (bonds and equities), investors can use them to hedge risk, as well as protect against inflation. However, because they are mostly based on the prices of futures contracts, they may be subject to contango or backwardation effects.

These are some of the common commodity indexes out there:

1. Thomson Reuters Equal-Weight Commodity Index

Previously known as the Continuous Commodity Index (CCI), the Thomas Reuters Equal Weight Commodity Index consist of 17 different commodity futures contracts that are continuously rebalanced to maintain an equal weight for each of the commodities. The commodities include wheat, orange juice, soybeans, cotton, corn, coffee, sugar No. 11, cocoa, live hogs, live cattle, silver, gold, platinum, copper, crude oil, natural gas, and heating oil.

Each of the 17 components has a weight of about 5.88%. Thus the various categories are represented as follows:

• Metals — 23.53%
• Energy — 17.65%
• Agricultural and softs — 47.06%
• Livestock — 11.76%

The Wisdom Tree Continuous Commodity Index Fund (GCC), formerly known as the Greenhaven Continuous Commodity Index Fund, tracks the CCI.

2. SummerHaven Dynamic Commodity Index

The SummerHaven Dynamic Commodity Index (SDCI) is an innovative index that tracks the performance of a fully collateralized portfolio of 14 commodity futures selected every month from a basket of 27 eligible commodities, based on price signals and diversification requirement across major commodity categories.

The commodity categories for the SDCI include energy, metals, livestock, and agricultural products (grains and softs). The United States Commodity Index Fund (USCI) is an exchange-traded fund that tracks the price movements of SDCI total return. It is rebalanced monthly to reflect the updated SCDI.

3. Astmax Commodity Index (AMCI)

The AMCI is a Japanese Yen-denominated commodity index that tracked the performance of certain commodity futures in the precious metals, energy, and agricultural sectors in the Tokyo Commodity Exchange. The eight commodities it tracked are as follows:

• Gold 33%
• Silver 3%
• Platinum 4%
• Palladium 4%
• Crude oil 33%
• Gasoline 15%
• Kerosene 5%
• Rubber 3%

The index normally held the longest maturity contracts available in all its component commodities, and it’s re-weighted once a year, based on liquidity. The only index fund that tracked the AMCI was the Commodity Index Alpha Money Portfolio/Astmax but has been liquidated. The calculation of AMCI itself was stopped in 2018.

4. Dow Jones-UBS Commodity Index

Presently known as the Bloomberg Commodity Index (BCOM), the Dow Jones-UBS Commodity Index was launched in 1998 as the Dow Jones-AIG Commodity Index (DJ-AIGCI) but was renamed in 2009 when UBS acquired the index from AIG. In 2014, the name was changed again to its current name.

The BCOM is a weighted index that tracks 22 commodity futures contracts across energy, metals, agricultural produce, and livestock categories. The weighting is done in a way that no single commodity constitutes less than 2% or more than 15%. Rebalancing is done annually to ensure proper diversification. The E-TRACS DJ-UBS Commodity Index (DJCI)E-TRACS DJ-UBS Commodity Index (DJCI) and iPath Dow Jones-UBS Commodity ETN (DJP) track the BCOM.

5. Goldman Sachs Commodity Index (GSCI)

Presently known as the S&P GSCI, the Goldman Sachs Commodity Index is a broad index of the commodity market. It serves as a benchmark for measuring the long-term performance of the commodity market. It was launched in 1991 by Goldman Sachs but was acquired by the Standard and Poors in 2007.

The S&P GSCI consists of 24 commodity futures contracts across all the four commodity categories: energy, metals, livestock, and agriculture. The component commodities are weighted according to their average global production levels.

The iShares S&P GSCI Commodity Indexed Trust is one of the ETFs that track the index. Another exchange-traded product that tracks the index is the iPath S&P GSCI Total Return Index ETN.

6. Thomson Reuters/CoreCommodity CRB Index (TR/CC CRB)

The TR/CC CRB is a commodity price index that consists of 19 commodities quoted on the NYMEX, CBOT, CME, COMEX, and the London Metal Exchange. Those component commodities are sorted into four groups, each with a different weighting:

• Petroleum-based products, which always make up 33%
• Highly liquid assets
• Liquid assets
• Diverse commodities

The index was first introduced in 1957, but there have been up to 10 revisions to the index components since then — reducing the number of component commodities from 28 to 19.

One fund that tracks the TR/CC CRB is the Lyxor Commodities Thomson Reuters/CoreCommodity CRB TR UCITS ETF Acc.

7. Rogers International Commodity Index (RICI)

The RICI is a composite index of the commodity futures market introduced in 1997 by Jim Roger. It tracks 38 commodity contracts from 13 international exchanges. The commodities that make the list are the ones that are globally consumed in huge quantities, and the list of commodities can be changed by the RICI Committee.

The index is divided into three sub-indices, reflecting the three sub-segments of the RICI — RICI Metals, RICI Energy, and RICI Agriculture. Metals contribute 21.10%; agriculture contributes 34.90%, while energy contributes 44.00%.

The RICI-Total Return ETN (RJI) is of the exchange-traded products known to track the index.

8. Standard & Poor’s Commodity Index

The standard and Poor’s Commodity Index (SPCI) tracked agricultural and industrial commodities with actively traded U.S. futures contracts. The index included only commodities that were used for industrial purposes, and the components were rebalanced annually.

The Standard and Poor’s discontinued the calculation and publication of the SPCI series on the 31^st of January 2008. So there’s no ETF for it.

9. NCDEX Commodity Index

The NCDEX Commodity Index is made up of an equal-weighted spot price index of 10 agricultural commodities in the India commodity market. It consists of commodities, like oils, oilseeds, fibers, and others, and each of the components is assigned the same weight. The NCDEX Commodity Index is the first index introduced in India.

The NCDEX also displays the national index futures based on the components of the spot price index. The price of the national futures index is derived from tracking the futures prices of the component commodities, using the same weighting as the spot price index.

Presently, there is no exchange-traded product that follows the index or the index futures since India’s Forward Contracts Regulation Act of 1952 (FCRA) requires compulsory physical settlement for futures contracts.

10. Deutsche Bank Liquid Commodity Index (DBLCI)

Launched in February 2003 by Deutsche Bank, the Deutsche Bank Liquid Commodity Index tracks the performance of six commodities in the metals, agricultural, and energy categories, and each of the categories contributes two of the most liquid commodities in its group.

Although the index has a specified weighting for each of the component commodities, they are rebalanced once a year, in the first week of November, so the weights fluctuate all through the year due to price movements of the component commodities.

There are no active ETFs associated with the index at the moment.

Conclusion

A commodity market is a physical or electronic marketplace where buyers and sellers can trade any type of commodity. It can be either be a spot market, where the goods are exchanged immediately, or a futures market, where the goods are delivered on a future date. Commodities can also trade over the counter.

FAQ

How do commodity markets function?

Commodity exchanges facilitate price discovery through demand and supply dynamics. Traders, via commodity brokers, buy and sell commodities either through open-outcry auctions or electronic platforms. Clearinghouses ensure trade execution and settlements, minimizing the risk of counterparty default.

What is the difference between spot and futures markets in commodities?

Spot markets involve immediate settlement and delivery of commodities, whereas futures markets specify prices in real-time for future delivery. Spot prices are more susceptible to changes in demand and supply, while futures prices may indicate expectations of future price movements.

How do commodity markets help in hedging risk?

Commodity futures and forward contracts allow producers and users to hedge against price fluctuations. For example, a mining company can hedge against a potential decline in oil prices by selling futures contracts, securing a profit margin.

How can I invest in commodities through ETFs or ETCs?

Exchange-traded funds (ETFs) and exchange-traded commodities (ETCs) provide convenient ways for investors to gain exposure to commodities without trading futures contracts. These investment vehicles track the performance of commodity indexes or hold physical commodities, offering diversification and liquidity benefits to investors.

How can retail investors trade commodities effectively?

Retail investors can trade commodities effectively by conducting thorough research, diversifying their portfolios, managing risk through proper position sizing and stop-loss orders, and staying informed about market trends and developments. They can also utilize investment vehicles like ETFs, index funds, or CFDs that suit their investment objectives and risk tolerance.