Wherein lurketh thy sting to the unawares, oh commodity markets?

It's all the rage, this commodities thing. From softs to hard metals and pork bellies to frozen concentrated orange juice, hedge funds and their investors are aware of commodities' secular bull run. The choice of entry point is, however, complicated by having hedge funds, funds of hedge funds, and index products all vying for consideration. Index providers say the FoHF route is an expensive one. FoHFs say the indices vary so markedly from one another investors are taking bets on specific commodities just by investing in any one of the "passive" products. Now hold on, ladies and chaps! Back to basics, please. Let's look at the markets themselves and answer one simple question: What is/are the primary consideration(s) for hedge funds and their investors when getting involved in commodity markets, hmmmm?

Diego Parrilla, merrill lynchSupply and demand fundamentals rule the commodity markets, but keep an eye also on geopolitics, on macro, and on investor and hedging flows!

And commodity squeezes? Do not underestimate the physical nature of commodities.

Unlike the case for currencies, equities, or bonds, we cannot "print" commodities. In the absence of inventories (which provide a cushion against short-term supply/demand disruptions), the inelasticity of demand can result in wild price action and