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

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.

To learn more click here

The futures and commodities markets are two vital parts of the investment world but represent two very different things altogether. Commodities markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts. The futures market is an auction market in which participants buy and sell future contracts for delivery on a specified future date. Trading is carried on through open yelling and hand signals in a trading pit.

A commodities market serves the purpose of allowing two individuals to exchange the rights to goods without visual inspection. Commodity markets require the existence of agreed standards opposed to spot markets where delivery either takes place immediately, or with a minimum lag and normally involves visual inspection of the commodity or a sample of the commodity. A forward contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today (buy now, pay later). Forward contracts have evolved and have been standardized into what we know today as futures contracts.

A futures contract is a type of derivative instrument, or financial contract, in which two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. If you buy a futures contract, you are basically agreeing to buy something that a seller has not yet produced for a set price. But participating in the futures market does not necessarily mean that you will be responsible for receiving or delivering large inventories of physical commodities – remember, buyers and sellers in the futures market primarily enter into futures contracts to hedge risk or speculate rather than to exchange physical goods.

That is why futures are used as financial instruments by not only producers and consumers but also speculators. The futures market allows buyers and sellers an opportunity to manage price risks for goods they will either need to purchase or sell at a later date. An example is Boeing utilizing the futures market to hedge against an increase in the cost of aluminum at a later date which is a major component in the manufacture of an aircraft (i.e. hedging).Unlike a stock, which represents equity in a company and can be held for a long time, if not indefinitely, futures contracts have finite lives.

My background is in marketing and I know one of the big challenges of raising capital for both emerging and medium sized hedge funds is that everyone wants their 3, 15 or 125 checkboxes to be complete. There are so many investment managers competing for capital that investors must limit who they seriously consider and complete expensive due diligence on to those which have top percentile performance, risk management tools, track records and AUM figures. This can be very frustrating and an ongoing challenge for many managers trying to grow their business and assets under management.

I got this email earlier today from a hedge fund manager:

“It would be interesting for you to post an article on how hedge funds that are doing well in 2009 are not necessarily the ones who will get capital given stricter due diligence requirements. For example, our fund, the XXXX XXXXX Fund was up over 50% through May and is up something in the range of 65% as an estimate through June yet it is still very difficult to raise capital because nobody wants to allocate to smaller funds.”

and a follow up email from this same fund later in the day:

I have come across your page a bunch of times and I figured I would make the suggestion. When you think back to when hedge funds first became popular, having the best of the best portfolio managers manage money for the extremely wealthy was more of a status symbol than anything else. Alternative investments have obviously evolved over time. But the idea was that these investors would take some risk in order to enable their personal portfolio managers to generate outsized returns. People seem to lose sight of the fact that there is still a tremendous amount of talented, brilliant managers out there who have been through many cycles and have the capacity to do extremely in months and years to come. Now is a time when people who take risk will get richer. Yet people are so gun shy that they run the risk of overlooking the best talent and missing opportunities that may, in some cases, only be available to the 200mm or 300mm boutique shops. They lose sight of what the business is about, of what they invested with hedge funds for in the first place. Unfortunately, it has boiled down to investors being more concerned with checking boxes and analysts at institutional investment firms being more concerned with keeping their jobs than truly finding the best talent.

While I don’t agree 100% with the statement above, the manger makes a few good points and I would be interested in more feedback that other managers have about overcoming the “checkbox mentality.” If you have feedback please email me at Richard@hedgefundgroup.org.

An Agricultural Commodity can be defined as grain, livestock, poultry, fruit, timber or any other items produced from agricultural activities. The general price level of an agricultural commodity, whether at a major terminal, port, or commodity futures exchange, is influenced by a variety of market forces that can alter the current or expected balance between supply and demand. Many of these forces emanate from domestic food, feed, and industrial-use markets and include consumer preferences and the changing needs of end users; factors affecting the production processes (e.g., weather, input costs, pests, diseases, etc.); relative prices of crops that can substitute in either production or consumption; government policies; and factors affecting storage and transportation.

Worldwide, there are 48 major commodity exchanges that trade over 96 commodities. The trading of commodities consists of direct physical trading and derivatives trading. Most trading is done in futures contracts, that is, agreements to deliver goods at a set time in the future for a price established at the time of the agreement. Futures trading allows both hedging to protect against serious losses in a declining market and speculation for gain in a rising market.

Some of the most well known agricultural commodities that are traded are; Corn, Mini-Corn, Wheat, Mini-Wheat, Soybean, Mini-Soybean, Soybean Meal, Soybean Oil, Soybean Crush, Oats, Rough Rice, Milk Class III, Milk Class IV, Nonfat Dry Milk, Deliverable Nonfat Dry Milk, Dry Whey, Butter, Cheese Spot Call, Random Length Lumber, Wood Pulp, Live Cattle, Lean Hogs, Feeder Cattle, and Frozen Pork Bellies.

The commodities markets have seen an upturn in the volume of trading in recent years. In the five years up to 2007, the value of global physical exports of commodities increased by 17% while the notional value outstanding of commodity OTC derivatives increased more than 500% and commodity derivative trading on exchanges more than 200%. The notional value outstanding of banks’ OTC commodities’ derivatives contracts increased 27% in 2007 to $9.0 trillion.

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

Here is an an article about the commodity indices and it shows different commodity index group.One can also understand how various these various set of indices are calculated in accordance with specific set of rules set by the financial institution.

A commodity index is calculated in accordance with a specific set of rules defined by the financial institution that is maintaining the commodity index. A commodity index is calculated by applying percentages to the price of each commodity group it includes. Depending on the commodity index, those percentages are based on liquidity, production, and/or how significant a commodity subgroup is in the world economy . We’ll use Goldman Sachs’ Commodity indices as an example. Goldman Sachs has three different commodity indices; the S&P GSCI Total Return Index, the S&P GSCI Spot Index, and the S&P GSCI Excess Return Index.

The S&P GSCI™ Total Return index measures the returns accrued from a fully collateralized commodity futures investment that is rolled forward from the fifth to the ninth business day of each month. Currently the S&P GSCI™ includes 24² commodity nearby futures contracts. The S&P GSCI™ Total Return is significantly different than the return from buying physical commodities. In fact, the total return (i.e., the return on the S&P GSCI™ total return index) is the measure of commodity returns that is completely comparable to returns from a regular investment in the S&P 500 (with dividend reinvestment) or a government bond.

The S&P GSCI™ Spot index tracks the price of the nearby futures contracts, not returns available to investors. At the end of every business day, the S&P GSCI™ is composed of the same proportions by weight of the underlying commodities and expirations as the portfolio represented by the S&P GSCI™ Excess Returns. Most important, the S&P GSCI™ Spot index cannot be compared directly with the S&P GSCI™ Total Return index. For example, you cannot simply add T-bills to the spot return in order to draw a comparison with the S&P GSCI™ Total Return. In fact there is nothing you can do to make a direct comparison between the Spot and Total Return indices because they are measuring two very different kinds of investments.

Meanwhile, the S&P GSCI™ Excess Return measures the return from investing in nearby S&P GSCI™ futures and rolling them forward each month (on the fifth to ninth business days of each month), always keeping your investment in nearby futures. This is a leveraged futures investment.

The S&P GSCI™ Excess Return (unlike the S&P Excess Return ) is not the return above cash. The S&P GSCI™ Excess Return cannot be compared directly to the S&P GSCI™ Total Return, either. The S&P GSCI™ Excess Return plus T-bills does not equal the S&P GSCI™ Total Return because it ignores the impact of the re-investment of T-bill collateral yield gains back into commodity futures, and gains (losses) from commodity futures back into (out of) T-bills. The excess return index measures the returns accrued from investing in uncollateralized nearby commodity futures.

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.

Our team has researched on list of exchanges where commodities are traded on the global financial markets.Here are the list of major exchanges

A commodities exchange is an exchange where various commodities and derivatives products are traded. Most exchange trading floors are divided into octagonal areas, called pits, where traders stand facing one another. Each pit is designated for trading one or more futures contracts. Most commodity markets across the world trade in agricultural products and other raw materials 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. In essence, the exchange brings the seller of a commodity together with the potential buyer of that commodity to negotiate what price will be paid for the right to possess that commodity at some point in the future.

The exchange provides traders a place to trade and the support facilities necessary to handle trades (i.e. phones and price-reporting and dissemination systems). The Exchange itself, does not set prices or buy or sell for itself. The traders set the price for a given commodity based upon supply and demand for it. The people who are actually trading on the floor must be members of the exchange itself while the general public trades through a brokerage house which maintains a seat on the floor to trade through. The members of each exchange support the running of the exchange by paying dues and assessments.

There are many different exchanges throughout the world that trade in different commodities. Some of the major Exchanges are:

Americas

Brazilian Mercantile and Futures Exchange -São Paulo, Brazil Agricultural, Biofuels, Precious MetalsChicago Mercantile Exchange -Chicago, US Agricultural, Biofuels

Chicago Climate Exchange -Chicago, US Emissions

HedgeStreet Exchange California, US Energy, industrial Metals

Intercontinental Exchange -Atlanta, Georgia, US Energy, Emissions, Agricultural, Biofuels

Kansas City Board of Trade -Kansas City, US Agricultural

Memphis Cotton Exchange Memphis, US Agricultural

Mercado a Termino de Buenos Aires -Buenos Aires, Argentina Agricultural

Minneapolis Grain Exchange -Minneapolis Agricultural

New York Mercantile Exchange -New York, US Energy, Precious Metals, Industrial Metals

U.S. Futures Exchange -Chicago, US Energy

Asia

Bursa Malaysia – Malaysia Biofuels

Central Japan Commodity Exchange – Nagoya, Japan -Energy, Industrial Metals, Rubber

Dalian Commodity Exchange – Dalian, China -Agricultural, Plastics

Dubai Mercantile Exchange – Dubai -Energy

Dubai Gold & Commodities Exchange – Dubai -Precious Metals

Iranian oil bourse – Kish Island, Iran-Oil, Gas, Petrochemicals

Kansai Commodities Exchange – Osaka, Japan -Agricultural

Multi Commodity Exchange – India -Energy, Precious Metals, Metals, Agricultural

National Multi-Commodity Exchange of India Ltd – India – Precious Metals, Metals, Agricultural

National Commodity Exchange Limited

Bhatinda Om & Oil Exchange Ltd. – India Agricultural

Karachi Precious Metals, Agricultural

National Commodity and Derivatives Exchange – Mumbai- All

Singapore Commodity Exchange –Singapore- Agricultural, Rubber

Tokyo Commodity Exchange -Tokyo, Japan- Energy, Precious Metals, Industrial Metals, Agricultural

Tokyo Grain Exchange – Tokyo, Japan- Agricultural

Zhengzhou Commodity Exchange – Zhengzhou, China -Agricultural

Europe

Commodity Exchange Bratislava – Bratislava, Slovakia- Emissions, Agricultural

Climex – Amsterdam, the Netherlands -Emissions

NYSE Euronext – Europe- Agricultural

European Climate Exchange – Europe -Emissions

London Metal Exchange -London, UK- Industrial Metals, Plastics

Risk Management Exchange – Hannover, Deutschland- Agricultural

Oceania

Australian Securities Exchange – Sydney, Australia Agricultural

As you can see, there is an exchange specific to almost any natural resource available from rubber to emissions.

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