So what goes into the production of a commodity?  Of course they are all different, so I will just look at a few representatives so that you may determine if they are an area in which you would like to invest.  The first is coffee.   Coffee, that ubiquitous drink from diners to five star restaurants, made at home and on the go.  Formerly available in decaf and regular, the choices now are more numerous than flavors of Baskin and Robbins.  No one I know grows coffee in their back yard, so where does it comes from, and how do we know how much to pay for it?

Coffee is generally grown in subtropical mountainous countries due to its preference for certain climatic conditions.  It is sensitive to wind, rain, sun, clouds, etc.  The beans are actually the pits of the fruit, almost like cherries.  When picked, either by hand or machine, the fruit is cleaned off of the bean; the beans are washed, and then dried.  Once dried, they are bagged, generally into the 150 lb burlap bags we associate with coffee (from commercials and labeling), grouped in 250 units on flats, and shipped overseas to the homes of the coffee roasters. 

Along the way there are all sorts of opportunities for things to happen.  Beans are very susceptible to mold and other moisture related conditions.  Good beans could be tainted by bad beans in a package, during long shipment times.  Beans can have good years and bad years, just like wine, and the price the coffee brokers can buy and sell the beans for depends on the conditions of their growth, as well as the worldwide coffee market.  Droughts or heavy rains can have significant impact on crops worldwide.

Brokers are tasked with choosing reasonable beans for the right roaster, and hoping that the farmer, packer, and shipper were able to keep the beans free from nematodes, leaf blight, and other diseases.  The beans are tested upon arrival to their port of entry, perhaps Miami, NYC, LA, etc… by the broker.  Samples from different bags of the flat are taken and compared.  The final price is set at this point, and the only shipping is now from the port to the roaster.  If the beans fail to pass the roasters testing, they may renegotiate with the broker, because they are not likely to use a bad broker again.  The roaster is then set to perform their magic to the bean and package it in some manor to reach your home or coffee cup.

Certain beans may be less expensive if it is easier to grow them, and/or if there are fewer costs in shipping.  The World Trade Organization certainly has a hand in setting pricing, as they determine tariffs on the imports and exports of coffee-producing countries.  Organically grown beans may have higher pricing, as they take much longer to grow, and are thereby more at risk of climatic degradation.   Trading this type of commodity one would need to know the forecast of the weather for the various world regions, any perceived changes in political standings of the countries, and the predicted flow of shipping into and out of the countries.  It is easy to see why this is not for the average investor.