3 Rules of Commodity Trading

  1. Commodity markets are not anticipatory assets and pricing in expectations will likely prove self-defeating; in other words, trade prompt fundamentals and don’t confuse deferred balances with reality
  2. Don’t speculatively trade commodities beyond their supply cycle; in other words, don’t wait for deferred fundamentals to catch up to the market as prompt fundamentals will win
  3. Commodity time spreads do not lie, at least through the duration of the supply cycle, and as a result provide a very good read on prompt fundamentals. However, further out beyond the supply cycle, prices and spreads are markets for risk capital and hedgers, and as a result, deferred spreads offer little information on deferred fundamentals.