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As we know, commodities trading is a popular method for market participants to gain exposure to price changes in various crucial products, such as oil, gas, gold, wheat, maize, etc.
Wheat and maize are especially important commodities, as they are the bedrock of the global food industry and disruptions in the supply chain of these commodities can have major adverse effects on the wellbeing of people around the world.
Commodities like wheat and maize are known as soft commodities. Traders can buy and sell futures contracts on soft commodities when they anticipate a rise in the price of grains, whether it be for some major supply shocks or increasing demand.
Other soft commodities include oilseeds, livestock, tropical fruits, etc. Soft commodities are distinct from hard commodities, which are typically extracted or mined, such as metals and energy resources.
Soft commodities are an important part of global agricultural and food markets, and their prices are influenced by factors like weather conditions, supply and demand dynamics, and geopolitical events.
If you are a beginner trader and would like to know more about how soft commodities work, this investfox guide is for you.
Soft commodities are a group that includes a wide variety of agricultural products that are essential for global food production.
Some notable subsets of soft commodities include:
Keeping track of all of these soft commodities and their prices can be a tedious task. However, investors can also follow indices that track the performance of the soft commodities market overall. One such index is the S&P 500 GSCi Softs Index.
Hard commodities are commodities that are obtained through mining or other extraction methods, such as oil, gold, silver, copper, etc.
There are a few core differences between soft and hard commodities. Here are some important distinctions:
Investing in soft commodities comes with its own fair share of risks and advantages and considering them is essential for investors to decide whether it is the best course of action for their investment objectives.
Soft commodities, also known as agricultural commodities, are raw, natural resources derived from agriculture. They include crops (wheat, soybeans), livestock (cattle, hogs), soft fibers (cotton), tropical products (coffee, cocoa), and more.
Yes, soft commodities can be risky. Their prices are influenced by factors like weather, disease, and geopolitical events, leading to significant price volatility. Additionally, storage and perishability issues can add logistical challenges for investors in physical soft commodities.
Yes, you can invest in soft commodities. There are several ways to do so, including purchasing futures contracts, exchange-traded funds (ETFs), or directly investing in agricultural companies.