There is little I dislike more than trading commodities. There are several reasons. For one, these markets are mostly unregulated. That’s right, while we run around trying to get original, certified, and notarised copies of our recent utility bills, we have little recourse for the blatant manipulation of the markets that determine how much we pay for our heating. OPEC is the most glaring example, but it is not like the global mining, energy, and agricultural giants, don’t control large swaths of the markets.
Then there is the way commodity markets function. When you buy a ton of copper, the price mostly depends on where, when, and how much it costs for storage and transport. Think of the value of the metal at the building site, versus sitting in a port far away. It is why we trade in contracts and there are vastly different prices for something valued in Shanghai for February, than in Rotterdam for May.
The worst though is the event risk, and some warehouse blowing up here, or some drought affecting the crop over there, and some strike shutting down a port somewhere, is one thing, but then there was the time when the April 2020 oil contracts went negative. So, if we can’t trade commodities, should we invest in them? Not directly, and you wouldn’t store a barrel of wheat in your basement for twenty years hoping the price will go up. However, you could buy the stocks of the companies that produce and supply all the materials, elements, and ingredients for the things we consume. Good luck with that.