How to invest in raw materials, metals and agricultural commodities [GUIDE]

Raw materials commodities) are unprocessed goods that are the basis for further processing and processing. We can trade commodities on commodity exchanges or other markets that offer derivatives based on the prices of these commodities. Initially, commodity trading was not subject to speculation. The required number of, for example, barrels of oil or bushels of wheat was ordered on the stock exchange with delivery in three or six months. After the agreed time, the manufacturer delivered the ordered goods and collected the payment. These were the first futures contracts.

Commodities became the subject of investment speculation in 1982, when futures contracts were allowed to be settled in cash, rather than in physical delivery. Thus, it became possible to speculate on the change in commodity prices.

Raw materials that are traded on financial markets are agricultural commodities (e.g. coffee, cocoa, cotton, wheat, corn, sugar or soybeans), energy resources (gas, oil), precious metals (gold, silver, copper, zinc, platinum, aluminum, palladium).

Agricultural commodities

Agricultural commodities are the backbone of the world's food industry. They serve both as a base product for further, more complex consumer goods, such as coffee beans and cocoa beans, and as feed for farm animals such as corn and soybeans. Below are the most important agricultural raw materials presented in a few sentences.

Coffee

Cultivated in 70 countries around the world, mainly in a subtropical climate. The main world coffee producers are Brazil and Vietnam. Colombia and Indonesia are other major players in this market. The largest consumers of coffee beans are primarily the United States, Germany, France and Italy. Coffee prices are influenced by the climate, transport costs, political events in the producing countries and the level of wealth of the society.

Check it out: How to invest in coffee [Guide]

Cocoa

A plant that is the basis of all chocolate desserts, it is grown in subtropical climates in America and Africa. The tycoon in cocoa cultivation in the world is Côte d'Ivoire, which accounts for 37% of global production. Other large producers are Ghana (18% of world production) and Indonesia (11% of world production). Cocoa prices are affected by oil prices, political developments in cocoa-growing countries and climate change.

Check it out: How to invest in cocoa [Guide]

Cotton

The largest cotton producers are India, the USA and China. Cotton is used in the textile and cosmetics industries and as animal feed. Cotton prices are influenced by the level of global reserves of this raw material, demand, price of substitutes and climate change.

Check it out: How to invest in cotton [Guide]

Wheat

The largest producers of this grain are the European Union countries, Russia, the USA and China. Wheat is used primarily in the food industry.

Check it out: How to invest in wheat [Guide]

Maize

Corn is a raw material for animal feed and an additive to a wide range of food products. Biofuel is also produced from maize. The main producers of maize in the world are the United States and China.

Check it out: How to invest in corn [Guide]

Sugar

It can be obtained from sugar cane and sugar beet. The largest sugar producers in the world are Brazil, India and European Union countries. Sugar prices are influenced by the supply of sugar, the demand for sweets in developing countries, the condition of Brazil's national currency, i.e. the Brazilian real, weather conditions as well as subsidies and duties for agriculture.

Check it out: How to invest in sugar [Guide]

Soybean

According to estimates, 80% of the world's soybean production is used for the production of feed for farm animals. Almost a half of the world's soybean production comes from just two countries - the USA and Brazil. Soybean cultivation is also significant in China, Argentina and India.

Check it out: How to invest in soybeans [Guide]

Energy resources

Energy commodities are perhaps the most popular commodities for investors and traders. Everyone keeps track of oil prices, and many also know about natural gas prices.

Petroleum

Crude oil is the raw material that has the greatest impact on the global economy. The price of crude oil influences the prices of all raw materials, as it is necessary for their transportation and sometimes production as well. Crude oil is used to make plastics and synthetic fabrics, which play a significant role in the consumer goods we make and buy. The determinants of crude oil prices on world markets are WTI crude oil (West Texas Intermediate) and Brent crude oil.

Check it out: How to invest in crude oil [Guide]

Natural gas

Second, after crude oil, the most important energy resource that drives our economy and warms our homes during the winter season. The leading producers of natural gas are the United States and Russia.

Check it out: How to invest in natgas [Guide]

Precious metals

The precious metals market is quite a popular investment topic. Gold prices determine the mood of investors and are closely correlated with the dollar exchange rate. Other precious and industrial metals are also interesting investment objects, and some are also determinants of the condition of the economy - e.g. copper or zinc.

Gold

The so-called "safe heaven". Gold is seen as a good investment of savings and capital for uncertain times - economic crises or periods of high inflation. Gold is also used in the production of jewelry and electronics.

Check it out: How to invest in gold [Guide]

Silver

Contrary to gold, silver is much more widely used in industry, in addition to its investment and investment value.

Check it out: How to invest in silver [Guide]

Copper

Copper is a very commonly used metal in many industries. For this reason, copper prices are considered a good indicator of the health of the world economy - the so-called dr. Copper. Copper is mainly used in the production of electric cables, roofing, sewage and industrial machinery.

Check it out: How to invest in copper [Guide]

Zinc

Zinc, like copper, can predict the condition of the world economy. Due to the close connection with the steel market, it well reflects the amount of infrastructure and industrial orders in the world. It is used for steel galvanization, creating metal alloys such as brass or aluminum solder. China accounts for 40% of the world's zinc production. Other important zinc producing countries are Peru and Australia.

Check it out: How to invest in zinc [Guide]

Platinum

Platinum is used in the automotive, jewelery and chemical industries. The main producer of platinum, accounting for 80% of world production, is South Africa. Accordingly, platinum prices are closely related to events in this country.

Check it out: How to invest in platinum [Guide]

Aluminium

Aluminum is used in the food, aviation and space industries. Electrical equipment, household appliances and car bodies are also made of aluminum. The largest producer of aluminum in the world is China, which is responsible for more than half of the global supply of this raw material and, at the same time, its main consumer. Aluminum prices are affected by the economic condition of China and the cost of oil.

Check it out: How to invest in aluminum [Guide]

Factors influencing the prices of raw materials

Each of the raw materials has its own individual factors that affect its price. This is especially true for raw materials that are produced in a small number of countries or are extremely sensitive to weather changes. Nevertheless, most of the raw materials are subject to universal factors.

Markets of developing countries

Developing countries such as China and India are huge economies that have significantly improved the quality of life of their citizens in recent decades. This creates an increased demand for raw materials both from individual consumers, who can afford more and more luxurious goods, and from the construction of infrastructure and industrial development.

For this reason, the condition of the economies of developing countries has a significant impact on commodity prices.

U.S. Dollar

The US dollar as a reserve currency plays a significant role in commodity valuations. Most commodities are traded on international stock exchanges in US dollars.

Raw material substitutes

Most of the raw materials have alternatives and substitutes. For example, cotton can be replaced with synthetic fibers like polyester. Palladium used in car catalytic converters can be replaced with platinum etc. As the price of one of the raw materials increases, there is a greater demand for substitutes, which regulates the market and prices.

How to invest in raw materials?

Futures contracts

The most original and traditional form of investing in raw materials. They can be purchased on an exchange that offers contracts for a given raw material. Futures contracts usually require a large investment in a single investment.

CFD

Contracts for Difference is an attractive and readily available alternative to traditional futures contracts. Their advantage is the ease of entering and exiting transactions, low costs, and the availability of financial leverage. Thanks to the financial leverage, we can commit much smaller funds to a given investment than it would have been without the leverage.

Brokers with a wide range of CFDs on raw materials

Broker
End	Poland	Great Britain, Cyprus	Denmark
Number of goods on offer	22	15	19
Min. Deposit	PLN 0 (recommended min. PLN 2000 or USD 500, EUR)	PLN 100	0 PLN / 0 EUR / 0 USD
Platform	xStation	MT4, MT5	SaxoTrader Pro Saxo Trader Go
	REVIEW	REVIEW	REVIEW
	CREATE AN ACCOUNT	CREATE AN ACCOUNT	CREATE AN ACCOUNT

ETFs

The way to easily and quickly acquire futures contracts for given raw materials is to invest in ETFs from a given raw material sector. Examples of ETFs that may be of interest are presented below.

ETFs for energy resources

[XLE] Energy Select Sector SPDR Fund

It is an ETF consisting of the largest US mining companies. Shares of Chevron and Exxon Mobil constitute slightly more than 45% of the fund's value. The annual fee in this fund is only 0.13%.

[USO] United States Oil Fund LP

It is the most liquid of all ETFs based on oil prices. USO maps the price of monthly futures contracts for WTI listed on NYMEX. The annual fee is 0,79%.

ETFs on metals

[SLV] iShares Silver Trust

The largest and most liquid ETF on the market with exposure to silver. The fund uses physical replication by holding silver bullion coins in London. It manages $ 10 billion in assets and is seen as the most stable of the funds. When we are new to investments, we wonder how to buy silver, it may be the easiest and best option. The annual rate of return on this fund is 22.15% and the five-year rate is 5.69%.

[JJC] iPath Bloomberg Copper ETN

ETFs with low fees that track copper contract prices. The fund buys contracts of only one month at a time and sells them shortly before the expiry date. The Fund purchases the contracts two months before their expiry dates in February, April and June and three months before their expiry dates in August and November.

[JJU] iPath Dow Jones-UBS Aluminum ETN

JJU manages assets worth 3.8 million dollars. The fund only buys aluminum futures and rolls them over for the next month when they expire.

ETFs for agricultural raw materials

[JO] iPath Series B Bloomberg Coffee Subindex Total Return ETN

The fund only buys one type of coffee futures at any given time. The fund's strategy is based on buying contracts 2-3 months in advance and selling them in the month they expire. The fund has the advantage of high liquidity and low management fees.

[BAL] IPATH SERIES B BLOOMBERG COTTON SUBINDEX TOTAL RETURN ETN

The fund buys cotton contracts one month to five months before expiry. BAL manages 10 million US dollar assets. The average spread is 0.59%, annual fees are 0.45%.

[SOYB] Teucrium Soybean Fund

The fund's strategy is to hold three soybean futures. The fund buys October (35% of the portfolio value) of the current year, and March (35% of the portfolio value) and May (30% of the portfolio value) of the following year. The remaining contracts are excluded from the fund basket due to low liquidity. The fund rolls contracts four times a year.

Forex brokers offering ETFs

Broker
End	Poland	Denmark	Cyprus
The amount of ETF on offer	approx. 400 - ETF approx. 170 - CFDs on ETFs	3000 - ETF 675 - ETF CFDs	397 - ETF CFDs
Min. Deposit	PLN 0 (recommended min. PLN 2000 or USD 500, EUR)	0 PLN / 0 EUR / 0 USD	PLN 5
Platform	xStation	SaxoTrader Pro Saxo Trader Go	MetaTrader 5
	REVIEW	REVIEW	REVIEW
	CREATE AN ACCOUNT	CREATE AN ACCOUNT	CREATE AN ACCOUNT

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.

Company shares

Another possibility of investing in raw materials is the purchase of shares of companies that manufacture or process the raw materials of interest.

Shares of energy companies

BP, Chevron (CVX), Exxon Mobil (XOM) and Royal Dutch Shell (RDSA) are giants that extract and process crude oil. If we are more interested in natural gas, we should be interested in such companies as Antero Resources (AR), Cabot Oil & Gas (COG) or Philips 66 (PSX).

Shares of companies extracting metals

Companies extracting precious metals during the boom in the metal markets achieve much higher profits than the mere increase in the price of the metal. The silver mining companies are: Fresnillo (FRES), Silver Wheaton Corp (SLW). Copper and many other metals are mined by Rio Tinto (RIO) and BHP Biliton (BHP).

Agricultural company shares

When it comes to the coffee market, it is impossible not to mention Starbucks Corporation (SBUX), as well as Whitewave Foods Company (WWAV) and Farmer Brothers Company (FARM).