Commodities: Where is your Money?

Imagine a scenario wherein you have $1 million to invest in any one commodity with a 5-year horizon. Where do you put your money? Where do you see the largest upside potential?

The commodity can be physical (you plan on redeeming gold for physical bullion, for example) or financial, ranging from WTI Crude to Sugar No. 14 to South American soybeans to C3 to ISO-4. Just explain your reasoning--very interested to hear what you have to say.

Liquid Natural Gas for me, simply because of increasing global demand and the US' abundance of natural gas. If FERC passes regulations to export for the first time (likely before end of '12), I have very bullish expectations.

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Comments (20)

Jun 8, 2012 - 11:18am

Precious metals--interesting

I was taught that the human brain was the crowning glory of evolution so far, but I think it's a very poor scheme for survival.
Jun 8, 2012 - 11:48am

I'd never put it in a single commodity.

I'd take the million, lend it to a handful of 4 or 5 mid-size agricultural producers and exporters at origin (South America - think sugar processors/ethanol plants/etc) against mortgages on their land, personal guarantees, and an first-priority asset lien - structurally, I'd do senior secured pre-crop export facilities, or repo transactions, targeting annualized returns in the range of 15%.

I'd also have a very good laywer on retainer, and a couple hundred grand to pay a judge if I needed to!

I'd never lock money up in a single commodity position for 5 years. Too many uncertainties - crop damage, etc. etc. etc. There's much more opportunity in starting a commodity-linked BUSINESS.

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Jun 8, 2012 - 12:12pm
AVPGuerilla:
I'd never put it in a single commodity.

I'd take the million, lend it to a handful of 4 or 5 mid-size agricultural producers and exporters at origin (South America - think sugar processors/ethanol plants/etc) against mortgages on their land, personal guarantees, and an first-priority asset lien - structurally, I'd do senior secured pre-crop export facilities, or repo transactions, targeting annualized returns in the range of 15%.

I'd also have a very good laywer on retainer, and a couple hundred grand to pay a judge if I needed to!

I'd never lock money up in a single commodity position for 5 years. Too many uncertainties - crop damage, etc. etc. etc. There's much more opportunity in starting a commodity-linked BUSINESS.

I couldn't agree more. What I'm more interested in hearing though are where people think markets are going. 5 years ago, did you think gold would be this expensive? I think it's awesome to hear folks' justifications behind their investments, though I suppose it's a pretty narrow question

I was taught that the human brain was the crowning glory of evolution so far, but I think it's a very poor scheme for survival.
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Jun 9, 2012 - 8:42pm
JRODG:
Addinator37:
I'd be tempted to put it in Natural Gas, personally. Or even some cocoa.

I'm also tempted by nat gas but curious on the the timeline for foreign and domestic price convergence, the whole regulatory process lng exportation permits in the US is a mess. I guess you could also gain exposure via Cheniere.

Yeah, I wouldn't necessarily be counting on LNG exportation making you gobs on money in the near futures. I'd simply be betting on the fact that the current supply glut and price depression probably won't last. Looking at Cheniere, your basically making a big bet on spreads staying wide between the US and internationally. Although I doubt they would converge fully, i'm not sure it would stay wide enough to make up for the capital expenditures needed to set up the exportation. Even when you look on their site at some of the figures they cite and the current prices margins on exported gas could get compressed extraordinarily quickly.

Jun 9, 2012 - 8:07am

I don't know if this should be a 5-year time horizon (probably needs longer) but something I believe will be huge is water purification/desalinization.

"If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."
Jun 9, 2012 - 8:09am
TheBigBambino:
desalinization.

*Desalination

"If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."
Jun 10, 2012 - 9:20pm
TheBigBambino:
I don't know if this should be a 5-year time horizon (probably needs longer) but something I believe will be huge is water purification/desalinization.

I'm in total agreement with this. Clean water is very profitable. Also clean air is going to be a valuable commodity in the future.

Jun 9, 2012 - 11:20am

Oil or oil derivatives of some kind.

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Jun 10, 2012 - 7:51am

meh everyone is expecting natural gas to go up. Long term growth is going to be driven by the emergence of new middle class consumers in BRIC and similar countries. For this reason, I expect water and water-centric products to produce. For example, desalination, purification, and water beverage (bottled water), will all have to prosper and become necessary in order for humans to not have a mass extinction.
While water isn't exactly a market commodity like oil, silver, etc., I think that this follows with the OP's question of what resource has the most upside for the near future.
For me, equities and ETF's that capture this theme such as to PHO and PHI are strong plays. Just do your due diligence.

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Jun 10, 2012 - 9:42pm
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