Does Anyone Understand Commodities?

[Jim Koepke]

For many years one of my hobbies was coin collecting. This also led to an interest in the markets for metals.

In the past few days the prices for metals have been advancing above normal activity.

In my current location my activity in coin/metal markets has been mostly occasional reading of business news.

Looking at the news some suspect this is an uptick due to hopes for greater business activity and others suspect it is due to fears of economic disaster ahead.

It always seems optimists and pessimists have a way of explaining the same thing in different ways.

jtk

[roger wiegand]

I thought about investing in commodities, but then figured that one day I'd forget to sell something and find a a guy with a tractor trailer load of soybeans in my driveway asking where I wanted them dumped.

Most of the markets tend to make some sense, gold is almost always completely wacky.

[Aaron Rosenthal]

From what I've heard on the financial news, it appears China is ramping up copper purchasing, and in the US, with the homebuilders getting VERY busy, they need a whole raft of metals for appliances.
Silver, as a cheap man's gold as well as some manufacturers need it for their processes.
Gold as a treasury stimulus hedge, and much of electronics uses gold for connectivity.
Platinum for the smog abatement cat. converters needed as the car makers ramp up.
Battery production uses metals and rare earth ores, etc.

[Thomas McCurnin]

I was a banker--they are volatile, and can go up or down wildly depending on climate, the economy and fear. Unless you know about these markets and study them daily, best to stay away or let a professional who invests in commodities guide you. I am sure there are some funds in Fidelity that specialize in these.

If your lazy, then this YouTube Video (1 minute 17 seconds) explains it all in easy to understand, concise language better than I could in 30 minutes. Video Explaining Commodities

[Michael Weber]

I know enough to not get involved.

[Bill Dufour]

I think there is a big difference between food commodities and metals. Food like grain and meat varies with the season and the weather. People have to eat regardless of the economy. Chickens reproduce in about six weeks, Pork one year, cattle about one to two year cycle. If the commodity price drops too much the ranchers stop reproduction and keep the animals longer to fatten them up more.
crops take about one season to grow but trees and nuts 2-5 years after planting until the first harvest. Almond. trees are replanted around 25-30 year cycles.
Metal prices vary with demand. there is not really a mining season. But some mines cost more to run and shut down production when prices are low.
Bill D.
PS: The USDA has started a commodities program this summer. You can get a free box of food once per week for your family. Theory is the farmers get paid. the packing houses and truckers, and wholesalers get work so the food supply chain stays in place for the recovery.
In my town it is being run by volunteers at the wealthiest school in town. No need to give your name/income or to even have youngsters. Is is not being advertised, we only know about it because our friend is a lunch lady at a poor school district that is not involved.

[Stephen Rosenthal]

I know enough to not get involved.

Great advice! When I was in college I worked at the Chicago Mercantile Exchange, first as a runner (delivering bids to the brokers in the pits), then was promoted to the phones ( taking and recording the orders). Very stressful. Watched a guy lose $600k in 3 hours, saw a broker drop dead of a heart attack. Things are likely computerized now, but to steal a movie title, it’s no country for old men.

[Stan Calow]

Its high stakes gambling, like a Ponzi scheme, but legal. You hope someone will come along and buy at a higher price than you paid. And sometimes that sucker is you. As with most investment gambling, my conclusion is that by the time I figure out it would be a good idea to jump in, the big players have already made their money and its too late for the little guy.

[Kev Williams]

I got in commodities just long enough to see just fast you can make- and LOSE- money.. but not long enough to understand why-!
This was about 18 years ago, shortly after I'd gotten a mutual fund account disguised as life insurance Got a call from some guy who thought I was a trader. Talked me into buying a put option on yen, cost me about $3600 including the vig. That's when (attn: Roger ) I learned to watch the stock market EVERY day. For many days I was down, simply due to the vig (which was outrageous). Then one Friday the guy calls again, says 'its going to move over the weekend, if you have any way of getting another option, you won't be sorry!' Because I came into some money, and even against my better judgement I went ahead and doubled down. This was on Friday, and I was still down at the time... Monday he calls about 2pm, says he cashed me out. I MADE a $7,700 profit between Friday and Monday because yen fell a coupla bucks or so... To this day I don't know how such a small move (in my mind) could cover the vig and still double my money. So when I got another call about a year later, about I NEED to get some call options on natural gas -it had hit its highest ever about 6 months before, came down hard and was poised to go up due to several natgas power plants coming on line soon- and unleaded gas, which was approaching the dreaded $2 per gallon mark and Spring was coming, and energy in general was costing more-- I took my $7.7k profit plus a few more k and bought call options on each...

About 3 days later, the Pres got on tv and announced "We need to figure out why energy prices are running amok, so we're going to investigate!"

Within days nat gas and unleaded prices plummeted. Within a few weeks unleaded was down over 50%, and nat gas was down, hell I forget but didn't matter, my $10k+ investment was worthless.

But I will say this, buying/trading options on commodities futures is a lot like Baccarat, you can bet on either side ...
And I did figure out later on, that had I instead bought PUT options and cashed out at the right time I could've profited north of $115k...

Money can be made, but it's not for the faint of heart, or the uneducated, as I was...

[Jim Koepke]

But I will say this, buying/trading options on commodities futures is a lot like Baccarat, you can bet on either side ...

Or ride both sides, it is called a straddle.

My thought about commodity contracts is they are possibly useful to some folks. My commodity investments are in commodities that can be physically held long term. Even with a large family, we would have a hard time consuming a few tons of soy beans.

With a little silver in with my coin collection maybe someday it will be liquidated or enjoyed by my heirs.

This does remind me of a story, no idea if it is actually true or just some filler for a magazine. After the war a civil war officer decided he was going to corner the market on dried peas. He bought and stored them in every outbuilding on his farm and then filled rooms in his home with dried peas. Shortly after every room of his house and every outbuilding was stuffed to the rafters with dried peas a storm came along. The humidity caused the dried legumes to swell. The expansion tore his house and outbuilding to pieces and all was lost.

Commodities are a strange game.

Only buy things you like because you may end up with a lot of it.

jtk

[Jim Koepke]

One of my thoughts about commodities is a friend gave me $1000 to purchase 0.999% fine silver about 25 years ago. He didn't have a place to store it so he asked me to keep it in my safe for him.

As things go, he had a bout of trouble and moved to Guam. About 15 years ago there was a record of his arrest for being disorderly in Hawaii. About 9 years ago my attempt at reaching him via snail mail at an address listed for him in Hawaii came up without a reply.

Knowing him, he could use the money since the price now is better than double what it was when purchased. When he lived in California he didn't have an actual address. He lived near a boat yard with a boat that was disassembled.

It may be my right to treat his silver as abandoned property. Maybe if it was sold, he would contact me. That is often how things happen to me. No need on my part for the money or the room it is occupying. But it is still one of those things that vexes my mind.

jtk

[Bill Dufour]

Farmers will contract to sell 1/2 their crop at a set price per ton. If the price falls they do well. If the price goes up they sell 1/2 at the higher price but at least break even on the contracted half.
Bil lD

[Bill Dufour]

I was in College when the Hunt brothers, of Texas, tried to corner the market in silver. They figured inflation would drive folks to invest in metals. They used their inherited billions and borrowed more paper money to buy silver and drive the price up. Problem was as the price went up folks sold their spoons as scrap and production increased. Governments sold multiple tons at the inflated prices until the Hunts had no cash money left to keep then price up. Then one Tuesday people selling silver had to drop their asking price down low enough that other buyers would be willing to pay. The price dropped about 75% within a few days.
My Mother worked on the Manhattan project to make the atomic bomb in Tennesse. Copper was needed for the war effort so some of the multiton electromagnets used silver wire instead. After the war ended they were rewound with copper wire.
Bill D

https://www.investopedia.com/articles/optioninvestor/09/silver-thursday-hunt-brothers.asp

https://www.americanscientist.org/ar...hattan-project

[Kev Williams]

One of my thoughts about commodities is a friend gave me $1000 to purchase 0.999% fine silver about 25 years ago. He didn't have a place to store it so he asked me to keep it in my safe for him.

As things go, he had a bout of trouble and moved to Guam. About 15 years ago there was a record of his arrest for being disorderly in Hawaii. About 9 years ago my attempt at reaching him via snail mail at an address listed for him in Hawaii came up without a reply.

Knowing him, he could use the money since the price now is better than double what it was when purchased. When he lived in California he didn't have an actual address. He lived near a boat yard with a boat that was disassembled.

It may be my right to treat his silver as abandoned property. Maybe if it was sold, he would contact me. That is often how things happen to me. No need on my part for the money or the room it is occupying. But it is still one of those things that vexes my mind.

jtk

It's definitely abandoned property, it's your right to do with it as you wish. Why not pack it up, cash it in, put $1000 in cash in an envelope (takes up a lot less space ) in case he ever shows up, do what you like with the rest and chalk it up to 'storage fees'. Your friend will have lost none of his original investment, you'll have some guilt-free spending money for your trouble. Even if you just put it in another envelope... Win Win

[Stan Calow]

This ⌃ sounds like a Magnum episode in the making. There is a difference between whats legal and whats ethical.