Soft commodities, which are agricultural products like grain, pork belly, coffee, sugar, and other sweets, seem to be a hot investment sector. The fundamentals look good. The demand side of the equation shows a severe shortage. This is despite the fact that the world has grown by 75 million people per year.
Even in difficult economic times, the demand for light commodities remains relatively stable. People will not stop eating just because they have less money. While they might be able to reduce their brand value, it will not affect the food product manufacturers and retailers.
However, for some softs, the market has expanded rapidly as biofuels have become a new source to increase demand. Some markets have seen growth due to changes in the food system and behaviour. The market for grain is not only influenced by human food demand but also by the demand for animal food chains. Consuming more meat in developing countries means that there is more demand for feedstock grains. The market will remain buoyant, even though 2017’s record-breaking prices might not be repeated.
Each commodity has its advantages and disadvantages. However, just because the market is moving in the right direction doesn’t mean that speculators will be able to make capital. Corn is expected to harvest higher than usual this year because of the favorable market conditions. This has led to a decline in prices and a slowing of the market. Soft commodities are a boon area.
It has been difficult for small investors to invest in commodities. There weren’t many places that you could visit unless you were willing to invest in future and options markets. This requires a day trader approach, and some specialized data feeds. Plantations can take up to 20 years to mature and an average-sized arable farm could cost millions.
However, investors can now take positions in the lighter commodity markets through the development of exchange-traded fund. ETF Securities was the first to offer ETCs (Exchange Traded Commodities) and has approximately USD 13bn in ETCs. They can be raised via a broker just like stocks. There is no stamp duty. There are many options available – ETCs for single commodities and ‘baskets’ like Grains (AIGG), which include corn, wheat and soybeans. For those who wish to be pessimistic about the market, there are’short ETCs.
Although light commodities shouldn’t make up more than 10% of an investor’s overall file, they can be a good way to diversify.
It doesn’t matter if it is a hard or soft commodity, commodities are important in all aspects. It is important to obtain securities so that you can get out of the big problems and make a good profit.
Trifid Research is a great resource for learning more about investing in soft assets. It has a rapidly expanding resource base on commodity investing including portfolio tools, how-to articles and virtual trading simulators. You can also access commodity trading tips during times of crisis.