There are many factors that affect commodity markets and they are closely related. Market behavior is extremely complex. Investors must focus on the important data for each commodity that they feel will affect the price the most.
Factors specific to a particular market
In a given commodity market, there will be factors that affect supply and demand for each of those markets, and have almost no effect on the other market.
For example, weather plays a very important role in the supply of agricultural commodities: Corn, wheat, but may not matter with markets like Gold or Silver, traders will be familiar with specific factors affecting this product group and they will invest and monitor these factors in detail.
Impact from other markets
Sometimes a certain futures contract can represent the input of another futures contract. Futures markets can be related to each other and these relationships can be calculated and analyzed by fundamental analysts.
For example, corn can be used to make animal feed and produce ethanol. A Corn trader would look at the market for Corn and its relationship to livestock as well as to ethanol’s relationship to analyze factor effects.
Another example is gasoline and oil. In the case of gasoline futures prices can be affected by supply and demand, the price of input goods.
Impacted by economic data
Economic data is also important for futures pricing.
Periodically released economic data can have a big impact on prices in a sector. Dozens of economic data reports are released each day with the built-in online calendar. most of these data will not directly affect the market when released but some reports have the potential to move the market. USDA shipping and seasonal announcements are data reports that move the agricultural market very strongly and traders will keep a close eye on these data.
Traders need to know the date the economic calendars will release, its implications relative to the market, and not all data has the same impact. More important is how the data fits into the current economic landscape and whether the market determines that it matters.
All futures contracts will have a separate report for each sector
For example, the USDA crop report is a specific report for futures in the industrial sector. Planting process, growth and harvest results. They are updated over the agricultural seasons and commodity futures prices react to the data.
Natural life cycle
Because many futures contracts represent commodities that do not have a constant supply such as corn, or the demand for a commodity that is higher at certain times of the year such as fuel oil. These seasonal supply and demand patterns create natural cycles and influence the price of futures contracts.
For example, when corn is harvested at a specific time of the year, the supply will not increase until the next harvest.
Commodities related to fuel sources such as heating oil are naturally in higher demand during certain times of the year. On winter days, fuel oil is more in demand.
Commodity spot prices and commodity futures prices
A futures contract is a contract that sets the price at a certain time in the future. While spot price refers to the price to be paid today if the commodity is purchased.
The futures market is priced based on the value of the commodity delivered at a given time. This means that the futures price and the spot price will differ over the life of the futures contract. Commodity futures and spot prices will consolidate and diverge over time.
