The financial markets are the backbone of the global economy. Their nature was never supposed to be speculative, but thanks to this transition, many people alongside companies can simply generate income based on good guesses and arbitrary value, which then can be re-invested based on the trader’s preferences.
The financial markets are what dictate the value of different assets in our lives, and most of the time it’s calculated based on market predictions and market participation. However, the 21st century has started seeing a little bit of a shift from a “profit perspective” to the “moral perspective”.
Q4 2019 hedge fund letters, conferences and more
Last year was a banner year for hedge funds in general, as the industry attracted $31 billion worth of net inflows, according to data from HFM. That total included a challenging fourth quarter, in which investors pulled more than $23 billion from hedge funds. HFM reported $12 billion in inflows for the first quarter following Read More
The biggest change in this regard happened in the commodities market when environmentalists started to be a lot more vocal about their beliefs, scientific data and the research done on the reasons why the world was starting to face some serious natural issues.
The art of trading sustainable commodities
Whenever somebody says that they’re a commodity investor, 99% of the time it used to mean that they own some barrels of oil or several ounces of gold or silver. Now though, a commodities investor is a lot more diverse with his or her portfolio, or very focused on one type of a commodity class.
The new upcoming stars of the commodity market are sustainable commodities, also referred to as sustainable goods. These include things such as coffee, cocoa, tea, sugar, beans and etc. Most of these commodities have to do with agriculture, so long as they are manufactured without serious effects on the environment surrounding them.
This was an amazing phenomenon in the financial markets, considering how unilaterally focused it is on profit rather than environmental preservation. But due to the addition of new investors every decade, the number of environmentally focused people keeps on growing.
Much like other financial assets such as Forex, stocks, and cryptocurrencies, commodities also have several events that affect their pricing in the long run. However, these events are not as broad as other assets.
For example, when talking about the events that could affect Forex rates, we can think of almost anything. This could be the change of government, the passing of a new law, war, low market traction, inflation, bank crisis and etc. There are simply way too many factors that could affect Forex rates.
Furthermore, it’s not always in the hands of the market, as large institutions have the ability to influence it based on how much they actually trade on a daily basis. Furthermore, the passing of a law affecting Forex brokers could dictate the change in exchange rates, as well as traded volume, thus making traditional finance quite iffy.
The immunity of commodities
Commodities are a bit different in this regard. Considering that these assets are usually concentrated in a single nation, means that they are much less likely to be affected by political changes.
For example, sugar is mostly grown in the Caribbean, meaning that any serious political change in the region could affect the pricing. However, the local government is aware of the importance of this commodity to the economy and therefore will go out of its way to preserve a profitable exchange rate.
However, when it comes to non-sustainable commodities like oil, natural gas, and coal, they need to be artificially adjusted in terms of the trading volume to keep the prices profitable in the long run.
Sustainable commodities, however, have basically infinite supply, simply because they can be produced without having to resort to reserves. Yes, there will be a day when humanity runs out of oil, gas, and coal but there will never be a time where humanity is unable to grow crops or tend to farmland (unless we don’t deal with the environmental issues that is).
Is the new trend hurting the economy?
There are some issues that the increasing popularity of sustainable commodities could bring. As demand grows on commodity stocks, all of the raw resources, as well as manufactured goods from those resources, will most definitely increase in price, thus causing a little bit of an issue for the end consumer relying on these goods.
For example, should the demand for coffee grow, the price of it will grow as well unless the world starts producing a lot more to match the supply.
But overall, this is a small issue compared to how much abstinence from oil and coal will bring to the world. It’s likely that an improved climate will indeed play a large role in increasing agricultural supply, thus meeting the demand and keeping the prices sustainable.
When will sustainable commodities reach star class?
It’s likely that these specific commodities will continue growing in popularity as more and more young investors start entering the financial markets.
The different understanding of the world order always helps shift the trend of the decade, and 2020-30 is definitely something focusing on sustainable goods as well as energy.
However, the real potential will be reached when the world actually runs out of finite energy sources. At that point, unless we switch to thorium completely (which is actually sustainable), agricultural sustainable commodities will skyrocket in price.