Basic goods are called in this way, those products that are intended for commercial use, and that have as the most relevant characteristic, that they do not have any added value, are unprocessed or do not have any differentiating characteristics with respect to the other products that we find in the market, for this reason they are used as raw materials to make other goods.
The Commodities market was born in the middle of the seventeenth century, in Chicago, thanks to the farmers there who did business with their crops with different clients. As time passes, the same farmers continue to negotiate, but now they do it before harvesting them and through large intermediary players, so that they negotiate their products with the future prices of the goods, in addition to setting a delivery date of your products, signing a contract.
What groups are there?
The different groups into which commodities are divided are described below:
- Energy: Among which are included oil, coal, natural gas, among others.
- Industrial Metals: They are those that are used in industrial processes, among which can be found: copper, nickel or zinc.
- Agricultural: such as wheat, corn, soybeans, and live cattle are also included in this category.
- Others: Here are grouped some basic goods that are not marketed in international markets, such as Rhodium.
Similarly, Commodities are traded in two types of market:
- The spot: in this case they are markets where payments are made in cash. Sale of production in the short term.
- Future markets: companies that seek to set a future price to guarantee their profits and investment, with the aim of buying so expensive.
The different characteristics of commodities are described below:
- They depend on External Factors: This type of property is affected by factors of various kinds, such as: agricultural droughts, tension in the markets, the economic slowdown. In other words, issues of a geopolitical, climatic and circumstantial nature of all kinds have a direct impact on this market.
- Volatility: Historically, most raw materials have a volatility that reaches 30% per year. This indicates that over the course of a year, the price of an underlying commodity will fluctuate by an average of 30%.
- High Returns: Given the high volatility of these products, it is possible for investors to have large profits or losses, which implies that a higher return is generated.
- They can be traded quickly: They are vital inputs to produce goods and services and are attractive to investors and are quickly traded.
How to invest?
There are several money desks that offer investment portfolios that have commodities as their underlying. And the Financial Superintendence of Colombia regulates this investment. Investments can be made through the Derivex market, and Bancolombia allows the purchase and sale of energy commodities at a future date at a set price.
There is also the possibility of investing abroad in this type of assets, through some online platforms such as Saxo Bank and Alpari-US.
But the most convenient thing is that in case you don't know much about this topic; you contact a trusted financial advisor or a recognized bank. You can also learn more about it on the page of the world's largest commodities exchange, which is the Chicago Mercantile Exchange.
The organized markets of raw materials are private alignments that make the different negotiations with customers, related to their purchase and sale, easier. In a given case, producers, farmers, the different companies that use these products in manufacturing processes can intervene in the negotiation. They can also include physical marketing, which dispatches the merchandise, using future prices.
But not only real productions are handled. There is the option of financial transactions, which do not include the delivery of both physical and personal merchandise. This type of operation is the most popular. Over time, there has been a very constant change in the prices of oil (the main commodity in the market) and of the rest of the raw materials. In world markets, high prices have also been experienced, as well as low ones, sometimes with great volatility that produces significant instability in general.
As a result of these uncontrols at the economic level, regulations have been introduced regarding the operation of companies or markets, limiting the speculation that has always caused the entry of financial derivatives. The continuous lack of control of prices in raw materials has had a profound impact on how small and open economies develop, causing changes in exchange terminations, which can be translated as instability that is constantly repeated in the macroeconomy. The main consequences are that they are noticeable in tax revenues, as well as in investment movements, which has long-term collateral effects.
What are the main commodities?
At present, the commodities or raw materials with which most are traded in financial markets around the world, either directly or through different derivatives, are the following:
- Natural gas
- Orange juice
- Pork Meat
Some countries base their economy mainly on the export of certain commodities, such as Chile with copper, Bolivia with Gas, Venezuela with oil, Argentina and Brazil with soybeans, Colombia with coffee, and so the list goes on.