Commodities for Dummies

I begin each morning looking at two screens. While one eye checks out CNBC, the other is on the computer, scanning all headlines related to companies I’m watching for the Forbes International Investment Report. The subject matter on these two screens is almost never the same.

Today, for example, I spent much of the early hours digesting earnings reports from global companies such as DaimlerChrysler, Sony, Canon and Tawian Semiconductor, just to name a few. In other words, no shortage of news on the computer screen.

Across the room, on the television screen, there was a primer on commodities going on. What exactly is a futures contract? Oh, so you don’t really take delivery of the wheat and beans? Wow.

There’s nothing wrong with brushing up on the basics from time to time, but I wonder why it needs to be done with so much other stuff going on. If commodities are so interesting, then tell me why BHP Billiton and Anglo American are getting clobbered. I don’t need a refresher course on the Hunt brothers at 7am.

This is just a minor gripe from a former news editor. I may beat up on CNBC from time to time on this blog, but by and large they do a great job, otherwise I wouldn’t tune in each morning.

My larger concern is that we’re seeing a little too much interest in commodities at the wrong time. There is no question that prices of many commodities still have room to run, but we’ve seen tremendous moves already. Where was the daily coverage of commodity investing when oil was 10 bucks? That’s when we needed it. Now that silver is at a 20+ year high, there’s a silver ETF in the works. Good thinking.

Save your money. There are plenty of better ways to participate in the commodities market. Here are two suggestions:

If you’re old enough to remember the days when people played board games you may remember Pit, a Parker Brothers commodity trading game. With just a stack of cards and a little orange bell, you and your friends can turn the living room into a live trading floor. I don’t know if they still make the game, but I see you can buy it on eBay for $6.

Better yet, rent (or buy) Trading Places, which has more than its share of commodity market wisdom. As Ralph Bellamy’s character Randolph Duke explains:

Now, what are commodities? Commodities are agricultural products. Like coffee, which you had for breakfast. Wheat, which is used to make bread. Pork bellies, which are used to make bacon, like you might find in a bacon, lettuce and tomato sandwich. Then there are other commodities like frozen orange juice and gold. Though, of course, gold doesn’t grow on trees like oranges.

You can’t ask for a better primer than that.