Real Assets: Understand the Commodity Market and Its Profit Opportunities

The Essentials About Commodities

Commodities are primary goods traded internationally, representing a vital segment for the global economy. They are standardized products whose prices are determined solely by the supply and demand relationship in organized markets, without dependence on central bank policies.

These assets include natural resources such as minerals, oil, grains, and livestock, as well as financial products like currencies and indices. What differentiates commodities from other investments is their intrinsic value – they are tangible goods with practical utility in the productive economy.

The main categories include:

• Energy: oil, natural gas, coal, uranium
• Metals: gold, silver, platinum, copper, iron, aluminum, zinc
• Agricultural: grains, fibers, oilseeds, sugar, coffee
• Livestock: meats, milk, eggs, leather
• Tropical: cocoa, tea, spices, exotic fruits

Emerging countries like Brazil occupy a strategic position as major producers, while developed nations consume significant volumes as industrial and energy inputs.

Global Market Dimension of Commodities

The commodities market moved approximately US$3.6 trillion in 2022, representing about 15% of the global GDP. This monumental volume reflects the fundamental importance of these assets in the international supply chain.

Participation by segment:

Oil leads trading with approximately 12% of the total volume, generating US$1.9 trillion in transactions. Followed by grains (soy, corn, wheat) with US$330 billion, agricultural commodities like coffee and cocoa with US$270 billion, coal with US$220 billion, natural gas with US$210 billion, and precious metals (gold and silver) with US$180 billion.

Major trading hubs are located in Chicago, London, Shanghai, and Dalian, where reference prices for global trade are established.

Why Add Commodities to Your Portfolio

Investing in the commodities market offers strategic advantages for any portfolio:

Asset Decorrelation: commodities behave independently of stocks and bonds, enhancing true diversification. This means that when stocks weaken, commodities often maintain or increase in value.

Inflation Hedge: historically, prices of these assets follow inflation cycles, preserving the investor’s purchasing power during cost increases.

Sensitivity to Economic Growth: during global expansion phases, demand for commodities naturally accelerates, boosting prices. This cycle offers opportunities for significant gains.

Tangible Assets: unlike financial instruments whose valuation depends on market perception, commodities have concrete value and intrinsic demand.

Return Potential: recent cycles like 2000-2008 demonstrated significant gains for properly positioned investors.

However, it is essential to recognize that price volatility, geopolitical factors, climate issues, and operational costs introduce considerable risks that require constant monitoring.

Brazil’s Supremacy in Commodities

Brazil consolidates itself as a global powerhouse in the production and export of commodities, generating crucial foreign exchange for the domestic economy.

Soy: the most strategic commodity for the country. As the second-largest producer worldwide, Brazil exported US$60.95 billion worth of soy in 2022. The grain feeds meal and oil chains, with applications in human nutrition, animal feed, and biofuels.

Iron Ore: the second pillar of exports. With global leadership in production, Brazil moved US$29.04 billion in this segment in 2022, supplying the international steel industry.

Crude Oil: a strategic expanding commodity. With pre-salt development, exports reached US$27.40 billion in 2022, increasing the country’s energy relevance.

Sugar: Brazil dominates the global export ranking. In 2022, the country shipped US$9.5 billion of the product, thanks to the efficiency of the sugar-energy sector in producing both sugar and ethanol simultaneously.

Meat: as the leading global supplier of animal protein, Brazil recorded US$11.8 billion in exports of beef and poultry in 2022.

This performance demonstrates growth potential in other commodities such as corn, cotton, and non-ferrous minerals.

Practical Strategy for Investing in Commodities

Before starting operations, it is crucial to master the mechanics of the commodities market:

Step 1 – Market Education: understand in depth how commodities are traded globally, what factors determine prices, and how geopolitical and climatic events impact quotes.

Step 2 – Asset Selection: analyze long-term trends, consider your risk profile, and identify commodities aligned with your vision. Gold, oil, and soy are traditional choices, but diversifying across categories (energy, metals, agricultural) offers additional protection.

Step 3 – Define Horizon: decide whether to operate in the short term seeking oscillation profits or in the long term to capture trends. This decision will shape volume and operational frequency.

Step 4 – Instruments: futures contracts are the main vehicles for investing in commodities, offering leverage and the possibility of both long and short operations. Start with standardized contracts.

Step 5 – Active Monitoring: track daily performance of positions, analyze price charts and technical indicators for timely entry and exit decisions.

Risk Management in the Commodities Market

To reduce exposure to risks, implement proven strategies:

Strategic Diversification: investing simultaneously in multiple commodities reduces the impact of isolated adverse movements, as prices are not perfectly correlated.

Trend Monitoring: constantly follow market variations, macroeconomic indicators, and geopolitical factors affecting supply and demand.

Protection Orders: use stop-loss orders to limit losses if prices move against your position, controlling risk automatically.

Hedging Strategies: contrarian operations such as buying opposite futures or using options protect positions in unfavorable scenarios.

Continuous Knowledge: seek updated information on market dynamics before making any investment decision.

The Verdict: Is Investing in Commodities Worth It?

Commodities present a legitimate opportunity for investors seeking diversification and inflation protection. Their nature as tangible assets fundamentally differentiates them from financial instruments.

However, price volatility, influenced by supply, demand, climate, and geopolitics, requires disciplined monitoring. Storage and transportation costs also impact final returns.

The decision should consider your investor profile, time horizon, and specific objectives. For exposure without directly trading futures contracts, index funds or sector companies offer alternatives.

The commodities market remains complex and dynamic, requiring rigorous analysis and continuous knowledge. With proper strategy and updated information, it is possible to capitalize on the opportunities of this crucial segment for the global economy.