A global poll by Bloomberg has found that commodities are now the preferred investment during the next year.  Bloomberg users were asked which asset class will offer the highest returns and the lowest and the majority voted for commodities; in a July poll, users believed stocks offered the best returns.  The change follows a 27% increase in the UBS Bloomberg Constant Maturity Commodity Index and a smaller 17% gain in the S&P 500 Stock Index since that July poll.

Real estate and bonds also switched positions in the ranking of which asset class would offer the lowest returns. In July, 40 percent said real estate would rate last while 29 percent said bonds. This week’s poll showed 40 percent cited bonds and 24 percent real estate.

The poll of investors and analysts on six continents was conducted Oct. 23-27. It was based on interviews with a random sample of 1,452 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll had a margin of error of plus or minus 2.6 percentage points.  Source

The Handbook of Commodity Investing is a book which focuses on the fundamentals of the commodity markets and the logic of investing in commodities with a long-term investment horizon.

Long-Term Commodity Investing

The author discusses about the different life cycles of investment and how an investor can earn sustained periods of above average returns, which are followed by prolonged periods of depressed prices. Individuals can also realize the benefits of including commodities in your portfolio to increase your long-term gains.

How to Invest In Commodities

The author presents many different investment vehicles you can use to invest in commodities – pros and cons. They include futures, futures options, commodity ETFs, commodity trading advisors (CTAs) and hedge funds.

The other key aspects presented in this book are the following

· Differences between fundamental and technical analysis

· Timing with which one should enter the market in order to get above average returns

· Entry and exit checklists are presented via case studies

Technical Indicators

The reader can clearly understand about the mechanics of trading by following the indicators

• Stochastics work well for determining whether a market is overbought or oversold.
• MACD sometimes overlaps stochastics and it helps to determine the strength and direction of a trend.
• The moving averages and Bollinger Bands help determine direction of trend and good buying or selling areas.

Trading Formations and Patterns

The author focuses on the trend analysis and introduces to the reader about some the vital forecasting concepts like analyzing seasonality, cycles which would help the trader in making decisions when he predicts a particular pattern.

Putting the Trading Plan Together

Since it introduces to the reader about the various indicators and forecasting tools, a lot would depend on the trader how he uses these tools to make a profitable decision. Case studies would definitely help the reader about how things can be put together given an economic scenario.

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Coffee is one of the world’s most important cash commodities. Coffee is the common name for any type of tree in the genus madder family. It is actually a tropical evergreen shrub that has the potential to grow 100 feet tall. The coffee tree grows in tropical regions between the Tropics of Cancer and Capricorn in areas with abundant rainfall, year-round warm temperatures averaging about 70 degrees Fahrenheit, and no frost. In the U.S., the only areas that produce any significant amount of coffee are Puerto Rico and Hawaii.

Coffee is generally classified into two types of beans: arabica and robusta. The most widely produced coffee is arabica, which makes up about 70 percent of total production. It grows mostly at high altitudes of 600 to 2,000 meters, with Brazil and Colombia being the largest producers. Arabic coffee is traded on the New York Board of Trade.

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Commodity Price Trend

The Reuters/CRB Continuous Commodity Index (CCI) in 2007 extended the rally that began in 2001 and posted a new record high of 477.48 in December 2007. During the 2001-07 bull market, the Reuters/CRB CCI index rallied by a total of 161% from the low of 182.83 in October 2001 to the record high of 477.48 in December 2007. The Reuters/CRB CCI index closed 2007 up +20.6%, marking the sixth consecutive annual increase (2002 +23.0%, 2003 +8.9%, 2004 11.2%, 2005 +22.5%, 2006 +13.5%).

Five of the six Reuters/CRB Futures Price Sub-indexes posted gains in 2007: Grains +53.0%, Energy +39.5%, Metals +26.4%, Industrials +13.4%, and Meats +1.0%. Only one of the sub-indexes showed a decline: Softs at -1.8%.

The Reuters/CRB CCI index was driven higher in 2007 by basically the same factors as 2006, i.e., strong physical demand in most commodity markets, a continued influx of cash into commodity index funds, and the weak dollar. The dollar index fell by -8.4% in 2007, adding to the -8.2% decline seen in 2006. Commodity prices in 2007 received continued support from strong world GDP growth until the credit crunch starting biting into U.S. GDP growth late in the year.

Energy
The Reuters/CRB Futures Price Energy Sub-index, which is comprised of Crude Oil, Heating Oil, and Natural Gas, accounts for 18% of the overall Reuters/CRB CCI Index. The Energy Sub-index in 2007 closed +39.5%, more than reversing the previous year’s decline of -16.1%. The energy sub-index has now shown double digit percentage gains in five of the last six years (2007 +39.5%, 2006 -16.1%, 2005 +54.4%, 2004 +27.5%, 2003 +11.9%, 2002 +56.5%). Crude oil in 2007 on a nearest-futures basis closed sharply higher by +57.2% following the 2006 close of virtually unchanged. Gasoline prices rallied by 54.5% in 2007 and heating oil prices rallied by +65.5%. Natural gas rose +18.8% in 2007, regaining part of the -43.9% plunge seen in 2006. Petroleum prices showed strength all during 2007 due to a production cut by OPEC at the end of 2006 and the beginning of 2007, and then due to strong demand and a weak dollar through the remainder of the year.

Grains
The Reuters/CRB Futures Price Grains and Oilseeds Sub-index, which is comprised of Corn, Soybeans, and Wheat, accounts for 18% of the overall Index. The Grains and Oilseeds Sub-index in 2007 closed +53.0% yr/yr, adding to the gain of +44.0% seen in 2006. Corn prices continued to rally in 2007 and closed +16.7% on the year due to strong demand from ethanol producers and strong demand for corn as human food and livestock feed. However, the star performers in 2007 were soybean prices (+75.4%) and wheat prices (+76.6%). Soybean prices rallied on reduced acreage and strong demand. Wheat prices rallied mainly due to strong demand combined with severe drought conditions in key wheat growing areas of the world, which produced the lowest U.S. ending stocks since 1947.

Our team has come up with an article about natural gas where one can find the details like it’s discovery and where it is traded.Moreover it also discusses about demand and supply issues and what causes the movements in the prices.

Natural gas is a fossil fuel that is colorless, shapeless, and odorless in its pure form. It is a mixture of hydrocarbon gases formed primarily of methane, but it can also include ethane, propane, butane, and pentane. Natural gas is combustible, clean burning, and gives off a great deal of energy. Around 500 BC, the Chinese discovered that the energy in natural gas could be harnessed. They passed it through crude bamboo-shoot pipes and then burned it to boil sea water to create potable fresh water. Around 1785, Britain became the first country to commercially use natural gas produced from coal for streetlights and indoor lights. In 1821, William Hart dug the first well specifically intended to obtain natural gas and he is generally regarded as the “father of natural gas” in America. There is a vast amount of natural gas estimated to still be in the ground in the U.S. Natural gas as a source of energy is significantly less expensive than electricity per Btu.

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This article is an overview about the commodities and futures trading commission.It briefs about the organizational structure and how it came into existence.

Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency’s mandate has been renewed and expanded several times since then, most recently by the Commodity Futures Modernization Act of 2000.

In 1974 the majority of futures trading took place in the agricultural sector. The CFTC’s history demonstrates, among other things, how the futures industry has become increasingly varied over time and today encompasses a vast array of highly complex financial futures contracts

CFTC Organization

The CFTC organization consists of the Commissioners, the offices of the Chairman, and the agency’s operating units.

The Commission consists of five Commissioners appointed by the President, with the advice and consent of the Senate, to serve staggered five-year terms. The President designates one of the Commissioners to serve as Chairman. No more than three Commissioners at any one time may be from the same political party.

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This article is an update about the commoditites and futures trading whether to set position limits on all commodity futures.

Commodity Futures Trading Commission Chairman Gary Gensler said in a statement on Tuesday that the agency will hold hearings in the next few weeks to seek comments from consumers and market players on whether to set position limits on all commodity futures contracts.

“Our first hearing will focus on whether federal speculative limits should be set by the CFTC to all commodities of finite supply, in particular energy commodities such as crude oil, heating oil, natural gas, gasoline and other energy products,” said Gensler, who took office on May 26.

CME Group Inc slumped more than 5 percent to $282.06 on Gensler’s statements, while IntercontinentalExchange dropped more than 12 percent to $98.03 a share.

William Blair and Co said in a research note that the stock sank on fears of CFTC imposing restrictions on futures trading, noting that energy futures comprised up to a quarter of revenue for each of the exchanges.

The CFTC will also seek comment on who should qualify for exemptions from position limits.To read more about this article click here

Our team has come up with an article about the modernization act which was passed to resolve a dispute concerning jurisdiction over securities-based derivatives and also focusses on the major areas like individual securities, future contracts etc.

The Commodities and Futures Modernization Act of 2000 was passed on December 21^st 2000 in order to effectively repeal the Shad-Johnson Jurisdictional Accord. In order to fully understand the meaning and underlying reasons for the Commodities and Futures Modernization Act of 200, one must understand what exactly the Shad-Johnson Jurisdictional Accord was.

The Shad-Johnson Jurisdictional accord, which was passed in 1982, was an agreement reached between the Chairmen of SEC and CFTC in 1981 to resolve a dispute concerning jurisdiction over securities-based derivatives. Under the accord, CFTC retained exclusive jurisdiction over all futures contracts, including futures on securities-based indexes and options on futures and physical commodities. Futures and options on futures on securities indexes were allowed only for contracts settled in cash, not readily susceptible to manipulation, and derived from a substantial segment of a publicly traded group or index of equity or debt securities, called broad-based indexes.

The major area of focus of the accord was that futures contracts on individual securities, other than exempted securities (such as U.S. Treasuries), were prohibited by the accord. The CFTC chairman who negotiated the accord stated at the CFTC reauthorization roundtable that the accord was intended to ban certain stock-based futures until issues of concern to SEC could be addressed. According to the legislative history, the SEC was concerned that the regulatory scheme governing futures trading did not mirror securities regulation in important areas such as insider trading prohibitions, customer protections, floor trading rules, and margin requirements.

The Commodity Futures Modernization Act was passed to “settle” the dispute of which body would have jurisdiction, CFTC or SEC, over an instrument that had features of a stock and of a commodity (i.e. a future on an individual security).

The Commodity Futures Modernization Act of 2000 had a companion bill which was labeled as the “Enron loophole”, because it exempts most over-the-counter energy trades and trading on electronic energy commodity markets. The “loophole” was drafted by lobbyists for Enron who were working with senators. Therefore, this act first gained attention as it was partially blamed for the fall of Enron.

What this Act really did was open the door to unregulated trading of credit default swaps which, in-part, led to the failure of Lehman brothers, the massive loans to American International Group (AIG), and the current economic crisis.

On June 22, 2008, the Senate proposed the repeal of the “Enron loophole” as a means to curb speculation on skyrocketing oil prices.

While researching about the commodity trading we came across some basic conditions and intresting facts about commodities.

Commodity trading as we know it began with farmers (sellers) and dealers (buyers) beginning to commit to future exchanges of grain for cash in the 1800’s. To be traded as a commodity, the item must meet three basic conditions.

a)It has to be standardized and, for agricultural and industrial commodities, must be in a basic, raw, unprocessed state.

b) It must have an adequate shelf life due the fact that a futures contract is by definition, deferred.

c) There must be enough fluctuation to create uncertainty; this means both risk and potential profit for the buyer and seller.

Some interesting facts about commodities are:

The Chicago Butter and Egg Board was founded in 1898 and evolved into the Chicago Mercantile Exchange in 1919. It is now the largest futures exchange in the United States and the second largest exchange in the world for the trading of futures and options on futures. (Chicago Mercantile Exchange)

It is estimated that typically four percent of what is actually traded, or less, is actually delivered. A contract may be bought and sold many times before the delivery date as businesses attempt to manage their risk. This is what accounts for the large volume traded, though relatively little is delivered, since the basic purpose of a futures contract is to provide price-change protection. (Chicago Board of Trade)

The dollar value of futures contracts traded currently exceeds several fold the dollar value of common stocks traded on all U.S. stock exchanges.(National Futures Association)

On the New York Mercantile Exchange, about 1,000 contracts are bought and sold each minute. (New York Mercantile Exchange)

Most exchange trading floors are divided into pits/rings where traders stand facing one another. These are more or less shallow octagonal areas with raised steps around the edge. Each pit is designated for trading one or more futures contracts.(Chicago Mercantile Exchange)

Commodity exchanges have been established around the world. A partial listing includes Argentina, Australia, Austria, Brazil, Bulgaria, Hungary, Canada, China, India, Japan, Korea, New Zealand, Singapore, South Africa, Turkmenistan, the United Kingdom, and of course the United States. (Wall Street Executive Library (Rutgers University))

The Clearing House is responsible for clearing trades and for the day-to-day settlement. This is called “marked-to-market,” and means that your account is credited or debited based on that session’s gains or losses. As prices move for or against your position, funds flow into and out of your trading account. (Chicago Mercantile Exchange)

Introduced in 1956, the New York Mercantile Exchange’s platinum contract is the longest continuously traded precious metals contract in the world’s marketplace. (New York Mercantile Exchange)

A commodities exchange is an exchange where various commodities and derivatives products are traded. Most commodity markets across the world trade in agricultural products and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, pork bellies, oil, metals, etc.) and contracts based on them. These contracts can include spot prices, forwards, futures and options on futures. Other sophisticated products may include interest rates, environmental instruments, swaps, or ocean freight contracts

Source: To view the exchanges  across the world click here