Complete Guide: How to Participate in the International Commodities Market

Current Market Appeal of Commodities

The commodities trading has experienced exponential growth in recent years. According to data from the International Monetary Fund, commodity prices increased by more than 100% between 2020 and 2022, primarily driven by fossil fuels such as oil and natural gas. This phenomenon has sparked interest from governments, multinational corporations, and individual investors worldwide.

The current volatility of the commodities market presents both significant challenges and opportunities. While some analysts from institutions like Goldman Sachs project increases of up to 43% in the coming months, the global economic outlook requires traders to have an in-depth understanding of the mechanisms of this market.

Investment Vehicles Available in the Commodities Market

To access the commodities market, investors have multiple options tailored to different risk profiles:

Shares of Energy Sector Companies

Shares of oil and gas companies offer indirect exposure to commodity prices. ExxonMobil has shown a valuation increase of nearly 300% since 2020, while Chevron records gains exceeding 260%. These companies generate additional income through periodic dividends.

Futures Contracts

Futures contracts represent standardized agreements to buy or sell specific volumes of commodities at future set dates. The CME Group, which includes the main U.S. exchanges (CME, NYMEX, CBOT, and COMEX), is the most important futures platform worldwide. These contracts allow speculation on price movements with leverage margins.

Specialized ETFs (ETFs)

Commodity ETFs trade like regular stocks, providing liquidity and ease of buying and selling. Notable examples include Invesco DB Commodity (DBC.US) and Invesco Optimum (PDBC.US), both with over $8 billion in assets composed of 14 commodities. These funds enable diversified investments without direct exposure to complex derivatives.

CFDs (CFDs)

CFDs allow traders to gain exposure to commodity prices without physically acquiring the asset. A distinctive feature is the ability to operate short, benefiting during bear markets. Available leverage amplifies both gains and losses.

Classification of Commodities and Market Dynamics

Energy Sector: Foundation of the Global Economy

Energies account for approximately 75% of global commodity production. Crude oil reached highs near $130 per barrel in June 2022 after the Ukraine crisis, subsequently experiencing corrections exceeding 40%. U.S. natural gas fell from $10 to $2 (80% drop) mainly due to warmer weather conditions in Europe during 2022.

Energy prices respond to geopolitical factors, decisions by producers like OPEC, seasonal weather conditions, and global economic growth prospects.

Metals: Diversity of Industrial Uses

The metals market is divided into two categories: precious and industrial. The London Metal Exchange (LME) records annual volumes exceeding 3 billion tons with valuation surpassing the $15 trillions.

Gold maintains its role as a store of value for central banks and a safe haven against inflation, with quotes influenced by monetary factors and market volatility. Copper, essential in construction and electronics, depends on the global economic cycle. Aluminum, vital in automotive and aerospace industries, responds mainly to energy costs during its production.

Agricultural Products: Sensitivity to Climate Factors

Agricultural commodities include grains (soy, wheat, corn), soft crops (coffee, sugar, cocoa), and fibers (cotton). Their prices fluctuate according to economic cycles, extreme weather events (droughts, floods), political crises in producing countries, and energy cost volatility. Agricultural raw materials declined 11% in Q3 2022.

Livestock: Specialized Niche

Although less common in trading operations, lean pork and live cattle trade in standardized contracts on the Chicago Mercantile Exchange (CME) in pounds or metric tons.

Outlook Analysis 2023-2024

The World Bank projects a general decline in commodity prices during 2023-2024, with energy experiencing sharper drops than previously forecasted. However, Goldman Sachs analysts point to bullish scenarios supported by: pause in FED interest rate hikes, China’s reopening, and potential European recovery.

The resumption of exports from Ukraine has eased food scarcity pressures. Simultaneously, metal inventories are at historic lows with limited productive capacity due to insufficient prior investments.

The Baltic Dry Index (BDI), which monitors maritime transportation costs of commodities, showed a slight recovery in recent weeks despite declines since October 2021, suggesting a potential increase in global demand for raw materials.

Strategies According to Investor Profile

For Conservative Investors

Including diversified commodity ETFs in portfolios provides hedging against currency devaluation and long-term inflationary pressures. When currencies depreciate, food and commodity prices typically rise, allowing benefits across different economic cycles.

For Active Traders

Intraday trading and scalping in futures and CFDs markets offer short-term profit potential by exploiting daily volatility. The combination of standardized contracts and leverage creates opportunities but also significant risks.

Final Considerations on Commodity Investment

The variety of available instruments allows participation tailored to multiple risk profiles. Profitability in commodity markets requires a deep understanding of each commodity’s specific dynamics, macroeconomic factor analysis, and professional risk assessment for each trade.

The inherent volatility of the commodities market can generate substantial returns as well as significant losses. We recommend consulting with specialized advisors before implementing complex trading strategies.