Commodity Trading Advisory

Commodities are said to be risky because they can be affected by events that are difficult, if not impossible, to predict, such as unusual weather patterns, epidemics, and both natural and human-made disasters.   

What Moves Commodity Prices?

• Changes in costs: Basic gains or losses shift based on differences in carry costs, storage, insurance, and financing.
• Currency fluctuations: Since most commodities are priced in U.S. dollars, changes in the dollar's value can greatly affect commodity prices. A weaker dollar makes commodities cheaper in other currencies, potentially increasing demand, while a stronger dollar has the opposite effect.
• Geopolitical and economic stability: Political events, economic policy, and instability in key regions can significantly influence commodity prices. Wars, political unrest, or economic sanctions where a commodity is produced can disrupt supply chains and affect prices.
• Global economic trends: The overall health of the global economy greatly influences the demand for individual commodities. Economic growth typically leads to increased demand, while economic downturns do the reverse.
• Government policies and regulations: Tariffs, subsidies, trade agreements, and environmental regulations all influence commodity prices. Policies restricting trade or production can lead to higher prices, while subsidies and incentives to certain industries can increase supply and potentially lower prices.
• Inflation and interest rates: Investments in commodities are usually a hedge against inflation. When there's inflation, commodities typically rise along with it, providing some protection for investors who have them as part of their portfolio. Interest rate changes can also influence commodity prices by affecting the cost of holding or financing commodities.
• Market speculation: Traders speculating on future prices can drive changes in the current prices of commodities.
• Storage and transportation costs: The expenses related to storing and transporting commodities, especially for perishable goods, can change, significantly affecting their price.
• Supply and demand: This is arguably the most fundamental factor. If the supply of a commodity is low relative to demand, prices rise. Conversely, if supply is high and demand is low, prices fall.
• Technological advances: Technological gains have historically helped lower the cost of commodity production. Alternatively, they can also lead to an uptick in demand for other materials. For instance, advances in renewable energy technology should help, at some point, shift the demand for fossil fuels.
• Weather and environmental events: The weather is a crucial influence on the production and supply of commodities, especially agricultural products and energy commodities like oil and natural gas. Droughts, floods, hurricanes, and other climatological events can disrupt supply chains and production, leading to price volatility.

GrainFuel Nexus® Commodity Advisory Services

• Guidance on Timing and Pricing:GrainFuel Nexus® expertise in futures markets, direct its clients on the best times to enter into physical contracts. For instance, if we anticipate prices rising due to seasonal trends or global supply disruptions, we can accordingly advise buyers to lock in prices early, securing better terms for them.
• Hedging Recommendations: While we may not directly engage in futures trading, we can recommend that our clients (buyers or sellers) use futures contracts to hedge their price risk. For example, a sugar producer might sell futures contracts to lock in a future sale price, while a buyer might buy futures contracts to secure a stable purchase price.

By understanding how futures prices reflect expected future supply and demand, GrainFuel Nexus® can negotiate better prices in physical contracts. For example, if futures prices indicate a future price drop, we might negotiate a lower current price for your buyer clients.

• Risk Mitigation Clauses: We may also use futures to negotiate contractual clauses that tie physical contract prices to future market conditions. This can include adjustments based on a future index price or a market average, offering protection against volatile price swings.

By directing our buyers using futures contracts,GrainFuel Nexus® locks commodity prices, ensuring cost stability and securing supplies for their clients.

• Currency exchange monitoring : Managing FX risks ensures that currency fluctuations do not erode profits.