The benefits of investing in commodities and how to choose the right opportunities.

We are experiencing major changes in the equity markets right now, and many investors are wondering, “What’s next?” Meanwhile, experts in the financial industry are predicting major market shifts that will create a commodities “supercycle” in 2021.

What do you need to know to successfully invest in commodities, and what are the best opportunities available today? Here’s why you should consider commodity investing:

The Benefits of Investing in Commodities

Commodities are raw materials or primary agricultural products that are consumed directly or used to create other products. Examples include grain, coffee, gold, copper, oil, beef, and natural gas.

These are just some of the advantages of commodity investing:

  • Portfolio diversification: Commodities historically have provided returns that differ from stocks and bonds over time. When you add commodity investing to your portfolio, you’re better protected from market volatility.
  • Potential high returns: In recent years, an increase in demand for various commodities has led to an increase in prices. Investing in commodities that are expected to experience an increase in demand can be highly profitable.
  • Hedge against inflation: Inflation, which often erodes the value of stocks and bonds, often results in higher commodity prices. In fact, many commodities have shown strong performance during periods of high inflation.
  • Long-term appreciation: There’s almost always demand for commodities, to the point some have called commodities “recession-proof.” As such, they’re poised to appreciate over time and offer investors consistent yields.

We’re Entering a Commodity Supercycle

The weak U.S. dollar, paired with many economists’ predictions about an overheated economy due to multiple rounds of stimulus, could lead to inflation that will raise the price of commodities. However, as of right now, commodities remain overlooked by the majority of investors, so prices remain low. 

In addition, many expect that we’ll experience some corrections in the equity market, which was seen as propped up by the government during the pandemic. Since commodities and equities are generally inversely correlated, we can expect the commodity market to outperform in 2021 if equities do underperform. These conditions create the perfect backdrop for the commodity investments to enter a “supercycle.”

During the past year, many commodities have already been breaking out. For example, copper has recently reached a two-year high, and lumber prices have more than doubled. Meanwhile, Goldman Sachs has proclaimed the dawn of a new commodity supercycle.

Which Commodities Should You Consider Investing In?

The top two most-traded commodities are oil and coffee. Oil prices have experienced dramatic fluctuations during the pandemic, and its future is uncertain due to increasingly stringent emissions control regulations and macro shifts to cleaner energy. On the other hand, coffee is popular among investors since it’s well-positioned to benefit from the rise in agricultural commodity prices. 

Moreover, the demand for coffee across the global market is rising. Coffee continues to grow in popularity thanks to the international success of chains such as Starbucks and Costa Coffee as well as fast-growing local roasters. In fact, over 2.25 billion cups of coffee are consumed every day.

China’s accelerating coffee consumption, which was already expanding before the pandemic, will likely continue thanks to the country’s quick recovery. Consumers in many emerging markets are also increasing their coffee consumption, which will increase the demand for coffee even more for decades to come.

While the demand side of the equation is going up, the supply side is facing challenges. 

Coffee requires very specific weather conditions to grow. The plant is mainly produced in countries affected by extreme weather (e.g., El Niño) that can ruin the crops. Climate change is already threatening coffee production in several key regions such as Brazil and Ethiopia.

For example, a prolonged drought has fueled speculation about the weakening of Brazil’s coffee trees in the 2021 production cycle, which would threaten Brazil’s position as the largest global producer and exporter of coffee. The potential loss could affect as much as 50% of the crop in certain areas and have a substantial impact on the global coffee supply. Furthermore, these extreme weather conditions can lead to the collapse of key infrastructure, impacting the flow of goods from their sources to the market in a timely manner to meet demand.

The rise in demand coupled with the potential drop in supply means that coffee prices are likely to rise in 2021 and beyond. All things point to coffee being a commodity that investors should consider if they’re looking to diversify their portfolio, generate high returns, and shield themselves from potential upcoming market corrections. 

Making the Right Commodity Investment

While commodity investing presents a lot of benefits, there are also risks that you should be aware of. For example, you should choose an investment with minimal exposure to volatility caused by political, economic, and currency instability. You should also evaluate world events, import controls, worldwide competition, government regulations, and economic conditions—all of which could impact commodity prices.

If you’re considering investing in coffee, you should look for an established operator in a region not affected by recent extreme weather events. Also, review its future expansion plan and market potential. For example, growers that are certified by the Rainforest Alliance can tap into a broader market of potential buyers and sell coffee at a premium price.

The Green Coffee Company in Colombia is one such opportunity for investors interested in the coffee industry. The project has already raised $8.3M in capital to date, is operational, managed by an experienced team, producing award-winning coffee, and selling internationally.

Total production increased 4x in 2020, more coffee was produced in January 2021 than the entire first half of 2020, and critical investments in automation, real-time data analysis, centralized controls, 3-D scanners, and other operational initiatives will make the company arguably the most technologically advanced coffee producer in Colombia.

With an forecasted target IRR of 23%, it’s an opportunity that you don’t want to miss. Learn more about our Colombian Coffee Series B Round and see how you can take advantage of this potential commodity supercycle.

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