commodities of the future

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By Investopedia.com | 07.01.2013

One of the long-term trends facing our planet is the fact that our world population continues to grow at a rapid pace. The United Nations predicts that the global population will increase by 11% leading up to the year 2020, and will jump by 20% by the time we hit 2030. This population growth will continue to place a greater strain on the limited supplies of the world's natural resources. Metals and other materials will be needed to build vital infrastructure. Vast amounts of energy resources are needed to provide electricity and to power western-style transportation. Tons of soft and agricultural commodities will be required to meet the world's growing middle-class demand for meat and other foods. As emerging and frontier markets continue to grow, commodities sector will continue even more important.

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In order to facilitate the use and trade of various commodities, exchanges have been set up to allow participants to buy and sell these critical natural resources. Futures and spot prices for items like crude oil, corn, gold and others are now commonly priced for end-users and speculators, alike.

Critical to all life on the planet, potable water could be heading to a commodities exchange in the near future. Given our continued population growth, water is facing huge supply constraints. Despite covering 70% of the Earth's surface, only about 1% of the water available is safe for humans to drink and use. Research also suggests that soil moisture levels on Earth are declining rapidly. This data could point to the fact that fresh water tables around the world are nearing depletion. Add this to a rising demand from nations like China - with a growth in water demand will result in an estimated 200 billion cubic feet supply shortfall within the next two decades - and it's easy to see why we will have potable water on a commodities exchange in the near future.

Analysts at Citigroup expected there to be a globally integrated market for fresh water within 25 to 30 years. That will include futures and spot pricing, along with fleets of water tankers and storage facilities that will dwarf those we currently have for oil and natural gas. Given future demand for liquid gold, I think they're right on the money.

A "Fracking" Little Bean

With hydraulic fracturing unleashing a virtual ocean of natural gas and oil from the world's shale rock formations, expect one of the key ingredients to begin trading on exchanges. Believe it or not, one of the key components in fracking fluid is the humble guar bean. The extract from guar, or its gum, is used to produce a gel in fracking fluid that delivers "proppant" to hold open cracks in shale rock when it is fracked.

About 80% of world production occurs in India and due to a three month shortage - costs for the bean have nearly doubled. However, that strong demand is causing other nations and regions to begin cultivating the plant. While guar is traded on Indian commodities exchanges, as these other regions - such as South America - begin production, it will be only a matter of time before its traded in the United States and other developed markets.

Rare Metals Plays

While everyone has heard of copper, the metals that aren't so well known are neodymium, europium and samarium. However, these minerals are becoming an ever increasing important part of the global economy. These elements are critical components of many electronic devices such as cell phones, flat panel TVs, electric cars and hard drives. Mostly due to its incredibly lax environmental policies, China currently produces more than 95% of the global supply of rare earth oxides. That has caused huge swings in pricing of these various strategic elements.

However, with other nations holding large REE reserves - including Malaysia and the U.S. - beginning to expand production and refine the metals, an international exchange will be necessary to facilitate proper pricing. While it could take years to do and China may not participate, the increasing demand for these high-tech elements will almost guarantee it.

The Bottom Line

Our rising global population is putting all sorts of pressures on the planet's natural resources. With this factor not abating, a variety of commodities with supply constraints and growing demand will find themselves trading on futures exchanges in the decades. The previous trio of commodities is just some of the biggest players that could make that leap.

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