Global supply chain issues and the lack of general demand are finally becoming a problem of the past. As the world transgresses the slow slope returning to normality, commodities offer a certain degree of security. Combine this relative certainty with easy access to margin trading and many other benefits CFDs provide, and you’ve got a lucrative platform for growing your money.
2021 Momentum Carrying Into 2022
As 2021 came to a close, global commodity prices began to rise. Leading financial institutes like The World Bank are confident the market elevation will last well into 2022. If the Commodity Markets Outlook is correct, energy prices will rise to 80% higher than in 2021. Despite a year of solid gains, certain non-energy commodities like metals are set to fall by as much as 5%, whereas agricultural prices are also expected to decline slightly from their current growth rate as supply constraints ease up.
Commodity Markets Poised For Gains
The global agricultural industry is poised for a strong year. The World Bank’s Food Price Index is seated 30 points higher than last year. Wheat, maise and rice are expected to grow by 3.7%, even though prices rallied in the third quarter to 25% higher than 2020. Beverage prices are also gaining with the recent coffee production shortfall in Brazil incited by weather. The Oils and Meal Price Index shows stability with a good season outlook forecasting a global supply increase for all seven major oilseeds.
Weather’s Effect On Commodities
Amid the volatility of shifting markets and the stabilisation of certain industries like energy, there are, fortunately, certain commodities that are easier to forecast than others. Factor in a forecastable variable like the weather when analysing agricultural investments, and definite opportunities arise. Just consider the following reflections from the World Bank’s annual commodities outlook:
Energy – Global economic activity and adverse weather conditions increased energy use for heating and cooling while reducing hydroelectric electricity generation. Furthermore, crude oil prices rose due to coal production disrupted by weather in many countries worldwide, resulting in massive supply chain disruptions. Natural gas and coal are both vulnerable in the short term to weather-related fluctuations. For example, cold winters in the US increased both gas production and consumption, doubling gas prices in February 2021.
Beverages – Brazil, the world’s leading exporter of coffee, has been struggling to fulfil demand due to drought during a period of the year when wet weather is expected. The crisis which began in may led to coffee reaching its highest level in four years, and many believe this just to be the start. Vietnam is already expecting a diminished 2022 harvest due to ongoing dry weather conditions.
Agriculture – Similar to Brazil, East Asia had its palm oil production severely diminished due to drought. Poor weather conditions have impacted South America’s soybean harvest and maise from North America, and the emerging La Nina weather pattern is looming with an 87% of hitting this November in the Northern Hemisphere.
Trade Commodity Markets With CFDs
So, how does one profit from the predictability of the weather without the volatility of global commodity markets? CFDs don’t call for a lot of capital to get started and allow traders to trade and profit on commodities no matter which way the market is moving. Instead of the massive capital demands of futures when trading commodities conventionally, trading contracts for difference (CFDs) allows you to trade on margin and speculate on price movements without actually owning any of the commodities themselves.
How CFDs Work
To trade CFDs, the trader simply speculates on the future price change of a commodity and then sets an order for either a buy position, otherwise known as a “long” order or a sell position, called a “short” order. No actual commodities are traded. Two traders are paired relative to their long and short orders (which can be seen as their guesses or bets on where the commodity price will end up on a predetermined date) and the difference between the price of the commodity at the time of initiating the contract and its final price at the contract’s end is paid out by one party.
Why CFDs Are The Best Way To Trade Commodities
CFDs are uncomplicated to trade and far more straightforward than options or futures. When trading commodities using CFDs, you’re free to trade all day for five days a week. Markets only close over weekends. The low requirements for leverage grant a fantastic investment spread to newcomers to trading and seasoned professionals alike. Take advantage of fluctuating commodity prices and maximise the reach of your budget. There are few better ways to capitalise on trend insight regardless of whether commodities are clearly going to upswing or downtrend.