Can somebody explain to me how storability affect commodity’s hedge against inflation? Why do storable commodities tend to be good inflation hedge while non-storable commodities like agricultural commodities tend to be bad inflation hedge? Same for the commodity’s link to economic activity: why would commodities that have more or less constant demand regardless of economic activity tend to be bad inflation hedge while commodities that are most affected by the level of economic activity tend to be better inflation hedge? Many thanks!
Your first question is answered here: http://www.analystforum.com/phorums/read.php?13,967185,967191 The second answer has a similar concept: You will need to supply the agriculture products (as an example) what ever the state of economy (at constant prices), but commodities like oil for example, can be supplied when the economy booms (high prices)
Seasonality is huge in the agricultural sector . In the oil or nat gas it is the cost of carry ( storage) and the convenience yield . Ag is driven basically by supply vs demand (short term disruptions cause havoc) and difficult to hedge , while oil/nat gas is driven by expectations which are more or less self fulfilling ( hence easier to hedge)