Trading in the commodities market requires a lot more knowledge than any other financial market. This is because this particular market is very volatile and is very heavily affected by specific factors such as weather, government policies, politics, etc. Basically anything that affects the country that produces the commodity and its relationship with other countries. Apart from these factors, trade of commodities is also variable by the season as demand and supply changes throughout the year. This coming autumn, you should be aware of the factors to consider during this period and the best commodities to trade in the autumn. In this post, we’re going to focus on the hottest commodities to look at and how you can make money in the commodities market. (Learn more about: Trading commodities)
What happens to commodities in the Autumn?
Before you can trade any market, you have to know the factors that affect the value of assets. The commodities market is mostly affected in the Autumn by the festive season. In the northern hemisphere, Autumn kicks in toward the end of September (the 22nd or 23rd day) and stretches to the 21st or 22nd of December depending on the equinox. All through this period, there are a lot of festivities that take place, and these creates demand for certain commodities. For example, Autumn is the season for the highest number of weddings. In the past, June used to be the favourite month to get married, but wedding statistics by The Knot noted that 16% of weddings took place both in September and October. (You should know: How to create a trading strategy)
It’s not just with weddings, as Autumn also presents excellent weather for other outdoor events. All these mean that commodities’ demand is bound to rise drastically during this season. In addition to outdoor events, there are also several major holidays that call for increasing demand for commodities. The big ones are, of course, Christmas and New Year’s day, but there’s also Thanksgiving in the US. Obviously, there is a lot of consumption during holidays, and certain commodities are in high demand. Demand goes beyond commodities to be consumed, but also others like oil for transportation and gold/silver for gifts and other jewellery. (To become a better trader: Learn To Trade The Forex Market Through Analyzing Supply And Demand)
There’s also another factor that becomes prevalent during Autumn, and that has been termed as the ‘September effect’. This phenomenon has been observed over the decades from the start of the 20th century where a majority of economic crashes have happened in the Autumn. The 1929, 1987 and 2008 market crashes all happened in Autumn and particularly in October. Researchers have attributed these catastrophes to a kind of hangover from the Summer holidays. During the Summer, traders and investors are in a good mood, but then they come back to their desks after the holidays and panic at the changes in the markets. (These are the: Basics of stock trading)
This phenomenon affects the commodities market too and can be spotted on long-term trading charts. Farmers plant most of their crop in the spring and then sell it around August. Over time, this seasonal trend of planting and selling has created a predictable pattern that you can take advantage of. In the coming sections, we shall look at actual charts that indicate these patterns, but suffice it to say for now that prices rise in the Autumn due to the higher demand and lesser supply. (Is It Time To Upgrade To Metatrader 5: Features Of MT5)
Of late, there has been a trade war initiated by the US administration that has already affected import and export of commodities. By increasing taxes through trade tariffs, the demand of these commodities is bound to decrease as their prices increase. For commodities that can’t be avoided, though, only the price will go up as we’re going to see in the next section. (Finally: Putting an end to broker bashing)
Commodities that get hot during Autumn
Now that we’ve looked at some of the factors every commodities trader should know, it’s time to look at those particular commodities to keep an eye on in the Autumn. By now, you should already have an idea of some commodities that have a high demand during festivities, so these should not really surprise you. (Do you know: What Is The Financial Commission And Can It Be Trusted?)
Soybeans
Soybean is mostly used in making livestock feed, but it is also used in making some food for humans while the rest is used to plant the next batch of crop. Processors take the soybeans and separate the oil from the soybean meal. The former is used to make products for humans such as soy milk, cooking oil, soy flour, tofu, etc. The residual soy meal is used to make animal feed because it has a high amount of protein. Some of the oil is also used for industrial purposes and biofuel, although only to a small proportion. Clearly, the use of soybeans in making cooking oil and other human products has a significant impact on the crop’s value in the autumn. (These are the: 5 Most Popular Uses of BTC and other Coins)
Moreover, the seeds are harvested between mid-October and November in the northern hemisphere. According to The Balance, the US is the world’s largest producer of soy, although brazil is the world’s largest exporter, meaning that a lot of US soy is consumed locally. However, Brazil’s soybeans mature between February and May, which would typically mean that prices for soy are bound to rise significantly in the Autumn. This year is going to be different, though, due to the implementation of trade tariffs for US imports into China. The US exports most of its soy to China as the graph below shows. In fact, soy is the top agricultural export from the US into China. (Do you want to know: How to create your own Forex brokerage firm)
Due to the trade tariffs, however, China is looking toward Brazil for their soy import and turning away from the US. This means that there will be reduced demand for soy this Autumn and, thus, increased supply. The chart below represents soybean futures for the month of November 2018 at the Chicago Board of Trade (CBOT). You can see that there was a huge slip in price from June when the tariffs were first proposed. Today, the abundant supply of soy has kept prices for the commodity low and will probably remain so for the foreseen future. (This is: All you need to know about futures contracts)
Therefore, for anyone interested in trading soybeans this Autumn, you should only look for selling opportunities as the demand for US soybeans has decreased significantly. From the same chart above, you can still see that there are more short positions for this commodity than long positions meaning that you should not be buying any soy this season. (These are the: Fundamentals of fundamental trading)
There may be some surprise in the soy market for the US if things don’t go exactly as expected. With increasing demand for Brazilian soy, the country may be unable to satisfy the demand from all over the world. Since there are no tariffs for US imports in Brazil, the country may import the extra demand from the US and then export to China and the rest of the world. The problem for now is that speculators like us are already panicking and the futures for November soy are less in demand. (Some of the: Common Forex terms you should know)
It’s not yet time to panic about soybean prices as there may be some reprieve to US soy farmers. The US administration plans to provide about $12 billion as aid for the crop’s farmers to protect them from falling prices. If this happens, then farmers in the US could choose to store their crop rather than sell it at a low price. In so doing, the supply of soy in the US would be decreased, providing some support for the crop’s prices not to fall too much below its current already low price. (Here are: The 3 Most Trusted Exchange Authorities in The World)
Wheat
Wheat is essential in making most of the foods we associate with the festive season. Stuff like cakes, cookies, pastries and other baked goods are obvious when people get together to celebrate any of the holidays in the Autumn. During this season, most people will also indulge themselves on holidays so other wheat products like cereal, bread, pasta, pizza, etc. are also all consumed heavily. The demand for wheat during Autumn usually causes the price of the commodity to rise during the season. (Some of the: Most common questions Forex traders ask)
However, trade tariffs hit wheat exports also just as they did with soybeans. The impact of these tariffs on wheat prices may even be worse on this particular commodity that soy. You see, wheat is produced by so many different countries including Australia, Russia, Canada, Ukraine and the US. Russia is the world’s largest exporter of wheat. This presents a lot of alternatives for importers who can always look for a different exporter when the US imposes trade tariffs. This is what has happened to US wheat futures since June when the tariffs for US exports were placed by China. (Know the: Best Forex traders of all time)
From the image above, you will also have noticed a spike in wheat prices between July and August. This was caused by reports that there would be decreased production of wheat due to bad weather in key wheat-producing countries. Drought in Australia and Russia, for example, indicated that there would be decreased wheat supply that would subsequently cause increased demand and prices. Due to these findings by the US Department of Agriculture, many believed that US wheat would have a lot more demand even from wheat exporting countries. (All the: Laws and limits of forex trading in the US)
These hopes were dashed in August when it became apparent that Ukraine would restrict wheat exports. This is something that usually happens when a country feels they don’t have enough produce for their own local needs. Although this is what most experts believed, neither Ukraine nor Russia restricted wheat exports, and that meant less demand for US wheat where trade tariffs made the export unfavourable. Indeed, the supply from Russia is expected to rise despite the poorer weather, and this caused wheat futures to decrease. (Try using one of the: Best US regulated Forex brokers)
Today is different, however, now that we’re in the Autumn and demand for wheat is significantly higher. From the chart above, you can see that there has been an increase in long positions for wheat futures for December 2018, and this trend may continue throughout the season. Fortunately, unlike soybeans, wheat is less dependent on political factors but more on the weather conditions. Wheat is a staple product all over the world, and its demand precedes political nuances between countries – up to a point. Importers are always going to look for a better deal, but they will always need to stock up on wheat. (Learn the: Basics of stock trading)
Crude oil
Over the holidays, the increasing demand for crude oil is obvious because of so much travel. Besides soybeans, China is also a major importer of US crude oil. China makes up 20% of the us oil export industry, and the new trade tariffs are bound to make exports less attractive, creating a similar situation to that of soybeans – more supply than demand. Fortunately, oil is one of those essential things that just cannot be avoided. After all, people won’t fail to travel to see their family over the holidays just because air travel becomes more expensive. Besides, there are other means of travel like road travel, and even that requires oil. A report by AAA revealed that more Americans are preferring travel over the Autumn because of lesser crowds and better weather. Because of these reasons, the value of crude oil always goes up in the Autumn. The chart below represents crude oil futures for the month of November 2018 at the New York Mercantile Exchange (NYMEX). (Have you wondered: What's going on with oil and how does it affect traders)
There is clearly an increase in trade volume over the past few days, most of it being long positions. This reflects the increase in demand for oil that occurs in the Autumn. Speculators expect that there will be increased demand, and that is why they are taking up more long positions for the November futures. Apart from this expected cycle of demand for oil, there is a report of oil reserves released weekly by the US Energy Information Administration (EIA). Over the past month, the EIA showed that there had been a gradual decrease in crude oil stocks in the US. This could be because of the increasing travel toward the end of Summer, and because of the expected demand for oil in Autumn, price of oil will keep going up. (For more profit, try: Trading stock indices)
From the live oil charts, the price of oil is now trading at around $70 that has been holding strong as a strong level of resistance since May. At the same time, oil markets have been going continuously upwards on the weekly charts as the trend line shown in red shows. The increasing trade volume is enough to break through the resistance level, and this is probably what is going to happen. (Let’s try: Comparing fundamental and technical analysis)
Gold/silver
A wedding isn’t considered complete until rings are exchanged. Other festivities in the Autumn also call for the exchange of gifts made from precious metals, specifically gold and silver. As a result, both of these commodities are in higher demand in the Autumn and tend to increase in value. Both of these precious metals follow a somewhat similar pattern in prices because they are both considered a safe haven by investors as you can see from silver trading brokers. Thus, investors buy more gold when the value of the US dollar and equities goes down and vice versa. This is exactly what has been happening recently. Because of their similarities, we’re going to consider them both as one to make things a bit easier. (These are the: 10 rules of how to earn money with scalping)
Since April, the value of gold has been decreasing among gold trading brokers because of rising interest rates in the US. Higher interest rates have made the US dollar stronger, and investors have shorted gold for the dollar and US equities. From the image below, you can begin to see the value of gold start to consolidate around the $1,200 mark. Historically, this has been a psychological level of support that has prevented further drops in price. Not only that, but the value of gold has fallen slightly over the past week. The US dollar index was down 0.1% as traders await the decision by the FED expected next week on the 25th of September. A lot of experts expect interest rates to be raised once more, which could cause the price of gold to drop below $1,200. On the other hand, there are some who don’t think rates will be raised again this month, but perhaps later in the year. (What is: Currency correlation and how to use it)
At the same time, there has been an increase in demand for gold as you would expect in the Autumn. To learn about demand for gold, data from Switzerland is the most closely monitored because most of the world’s gold passes through the country or is mined here. Commerzbank reports that there has been increased demand for gold from India as jewellers were stocking up on the India International Jewellery show. Even then, the demand has been lower in August than it had been in July. The other markets for gold like Hong Kong and China also had reduced demand, which could explain the decreasing prices for gold. (Do you know: Why Traders May Need To Use a VPS Service)
Due to the overall reduced demand for gold, it is unlikely that gold prices will rise as much as you would normally expect in the Autumn. The most important factor is still going to be the decision of interest rates by the FED. It is very likely that interest rates are going to be increased at least once this Autumn, and that will probably cause the value of gold to drop below $1,200. This will be the most important factor to consider when trading gold and silver this Autumn.
Other commodities
The best commodity brokers will usually provide all of the above commodities for trade as CFDs. Nevertheless, there are even more commodities that can be made available for trade. One of these is corn, and that acts very much like wheat. By looking at the charts for corn alongside that of wheat, you will notice that they are very similar in pattern. Both commodities are also affected by the same weather and political factors, so you can use the same tips we learned about wheat. Another pair of commodities often available is palladium and platinum. These act similar to gold/silver because they are also precious metals and considered a safe haven by investors when they are hedging against risk in the markets. But you have to use one of the hedging Forex brokers to achieve this. (Concepts Every Trader Should Understand: Leverage, Margin And Hedging)
Depending on the broker you’re using, you may find even more commodities that are available for trade. If you come across one that we haven’t discussed in this post, the best thing to do before jumping in is doing a lot of research on that particular commodity. As we mentioned in the beginning, there are different factors that can affect any commodity, and the key is to identify and keep track of them.
This video may be a bit long, but it does explain everything you need to know about the commodities market. Check it out here:
