Fundamental Analysis for Commodities

The Two Most Important Words when it comes to trading commodities are:

Supply and Demand!

That’s what moves commodity prices plain and simple.

Let’s dive in…

Types of Commodities

We can group commodities into three main categories:

1. Soft Commodities, are agricultural goods like:
   Cotton, Coffee, Cocoa, Wheat, Soybeans
2. Metals, including:
   Gold, Silver, Copper, Platinum
3. Energies, the big movers:
   WTI Oil, Brent Crude, Natural Gas

Soft Commodities (Agriculture)

These are crops and crops depend on weather.

• Was it a good harvest? Droughts? Floods?
  You can find updates from the U.S. Department of Agriculture (USDA).

Also, which countries produce these commodities?
Take coffee beans, major producers include:

• Brazil, Vietnam, Colombia, Indonesia

Ask yourself:

• Is there civil unrest?
• Are there export bans?
• What’s the local economy like?

Example: When the conflict in Ukraine (a major wheat producer) started, global wheat supply dropped and prices spiked.

Then look at demand:

• Is there rising global consumption?
• Any new uses for the commodity?

Metals

Ask:

• What is this metal used for?
• Is demand rising or falling?

There are two main roles metals play:

1. Safe-Haven Metals

• Gold is the classic safe-haven.
• In times of war, recession, or uncertainty, investors flee to safety.
• Other safe-haven assets include: USD, JPY, CHF, and of course — gold.

“When the world looks uncertain, gold tends to shine.”

2. Industrial Metals

• Copper is a great example also known as “Dr. Copper” because of its close ties to economic growth.
• It’s used in construction, electronics, and manufacturing.

Check supply too:

• Who mines the metal?
• Are there labour strikes, political issues, or regulatory crackdowns affecting supply?

Energies (Oil & Gas)

These commodities drive the world, literally and economically.

Ask:

• Who produces oil and gas?
• What’s happening in those regions?

Example:

• Middle East tensions? Markets react quickly.
• Russia’s gas exports were heavily impacted by sanctions during the Ukraine war.

Then there’s OPEC, the Organization of Petroleum Exporting Countries.

• They can increase or cut production, which moves oil prices significantly both at the pump and in the market.

And finally, demand.

• Is the global economy growing?
• Is industry active?
• Are airlines flying more?
• Are factories ramping up?

In boom times, demand rises.
In slowdowns, demand and prices drop.

Final Thought:

When it comes to commodities, always come back to:

Supply and Demand.
That’s what drives the price.