The seminar introduces the structure of the commodities market. It starts with the spot market and then moves to commodity forwards and futures. Specific features, such as delivery and settlement methods, are described. The spot–forward pricing relationship is used to decompose the forward price into spot and carrying costs. Various types of price term structure (such as backwardation and contango) are described, together with some economic theory. The seminar also describes short squeezes and regulations. Risk management at the commodity trading desk is given at a good intuitive level. The seminar concludes with some interesting facts on distribution of commodity returns.

 

At the end of Intrinsic Value's training seminar in the structure of commodities markets the participant should be able to:

􀂅  List four general types of commodities.

􀂅  Contrast base, strategic, minor and precious metals.

􀂅  Contrast grains, oilseeds and fibers.

􀂅  Define “on the spot” and “settlement of difference”.

􀂅  Define in store, ex store, Free on Board (FOB), Free alongside Ship (FOS), 􀂅  Cost Insurance & Freight (CIF) and Exchange for Physicals (EFP).

􀂅  Discuss the uniqueness of the gold market.

􀂅  Define  contango,  backwardation,  carrying  cost  (cost  of carry) and lease

     rate.

􀂅  Discuss  the  impact  of  shortages  on  commodity  prices and the history of

     short squeezes.

􀂅  Define short squeeze and demand for immediacy.

􀂅  Discuss the convenience yield theory

􀂅  State the arbitrage equation for commodity pricing.

􀂅  Discuss the decomposition of risk factors in commodities.

􀂅  Discuss the importance of non-normality of commodity price distributions.