Spread Betting on Soft Commodities
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Although less popular than Metals or Energy-based Commodities like Crude Oil, Soft Commodities (Softs) like Coffee still provide plenty of opportunity for anyone trading CFDs or spread betting. Or do they?
5 Soft Commodities Trading Facts
- There are many factors that influence food prices, at the moment the key areas are High Oil prices, high fertilizer prices, climate change, speculation and increasing consumption in the larger developing countries of China, India and Brazil
- In the last year US Crude Oil has increased by over 90% and Brent Crude Oil by over 85%. Fine, we have all seen and felt the effects of that. Softs have also seen some significant changes. Soybeans have experienced a 70% increase, Corn 65%, Cocoa nearly 50% and Robusta Coffee is over 20% higher
- If you are spread betting on softs you are not alone. Hedge funds and even pension funds have started trading these markets in order to diversify. No doubt they are also interested in the growth. With the populations of the BRIC (Brazil, Russia, India and China) countries becoming ever more affluent that can only lead to increased consumption
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- As discussed above, the high oil prices have pushed up the prices (transport and energy costs). Fertilizer prices are also on the increase. However, Mother Nature is responsible for most price spikes. Hurricanes, drought, excessive rain and crop disease all reduce supply
- A further increasing influence is the move to cleaner energy sources eg the US ethanol programme. That threatens to reduce the amount of arable land available for growing specific soft commodities. As IG Index Analyst Anthony Grech recently reported “Land is a fixed resource which has unique weather conditions suited for growing some of these soft commodities. If the ethanol programme, along with other alternative, soft commodity-derived energies, continues to grow, then demand for certain soft commodities will accelerate. Factor in home consumption growth into the equation and future demand for certain soft commodities could easily outstrip supply”
Naturally you can trade softs like coffee, soybeans and other commodities like Crude Oil and Gold with companies like FinancialSpreads.com and IG but be careful. Most commodities are traded in US Dollars and exchanges rates can affect prices as quickly as Mother Nature.
"Spread Betting on Soft Commodities" written by RThomas, last updated 17-Oct-2008
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