How to Trade Soft Commodities - A Comprehensive Guide

Bear in mind that on Switch Markets, traders can get access to various soft commodities, including the same commodity with different expiration dates. 

Here's the full list of all soft commodities available on Switch Markets:

Soft vs Hard Commodities - What’s the Difference?

“Soft” and “hard” commodities are terms that draw a line between agriculture vs. extraction. Here’s a quick comparison to make the difference clear:

• Origin: Soft commodities are grown or bred. That is, they originate from farms, plantations, or ranches. Hard commodities are mined or extracted (I.e., they come out of the earth). So, coffee, cotton, or cattle = soft, while gold, oil, or copper = hard. Softs go through planting, nurturing, and harvesting cycles, whereas hards are dug up or pumped out from finite deposits in the ground.
• Examples: Softs include items such as grains, sugar, coffee, cocoa, cotton, livestock, lumber, etc. Hard commodities include metals (gold, silver, copper, etc.) and energy commodities (crude oil, natural gas, coal). Another hard commodity includes Uranium, which is one of the most important commodities worldwide. In a word, if you can grow it, raise it, or cultivate it, it’s a soft commodity; if you have to extract or drill it, it’s a hard commodity.
• Influencing Factors: Soft commodity prices are often more weather and climate-dependent. A flood, drought, or disease can ravage a crop or herd, causing sudden supply shocks. This makes softs sometimes more volatile in price. Hard commodities are influenced by geological availability and industrial demand; e.g., oil prices might depend on OPEC decisions or geopolitical tensions, and gold on macroeconomic factors. Softs depend heavily on the growing season and regional climate conditions, unlike hards that can be mined year-round in various locales.
• Storage and Shelf-life: Many soft commodities are perishable or bulky. They may have limited shelf lives (e.g., fruits, coffee beans need proper storage) or incur storage costs (grains in silos). Hard commodities like metals can be stored indefinitely without spoilage. This means the logistics and costs of holding soft commodities are different. Futures contracts for softs often account for storage and spoilage in pricing (contango/backwardation dynamics). This can be represented in the price differences in various futures expiration dates. Soft commodity traders often use this as a method to predict future prices, a strategy known as spread commodity trading.
• Usage: Softs are primarily used for food, beverages, clothing, or animal feed. Hards are often inputs for industry and energy (metals for manufacturing, oil for fuel, etc.). Changes in consumer trends (say, a shift to plant-based diets or a surge in cotton demand for fashion) directly affect soft commodity demand, whereas technological or economic cycles might drive hard commodity demand.

Soft Commodities Trading - How to Trade Soft Commodities

Trading soft commodities can be rewarding and insightful. After all, you’re trading the stuff of life. But how do you get started? Let’s break it down into clear steps and tips:

1. Research and Understand the Market

Start by researching your preferred soft commodity market. Each commodity has its own supply/demand drivers. For example, if you’re interested in trading coffee, learn about Brazil’s coffee crop, Vietnam’s output, and how weather patterns like El Niño affect them.

Another thing you want to pay attention to is seasonality, as many softs have cyclical patterns tied to planting and harvest. 

You can also simply follow the news. Policy changes (like export bans or tariffs) and geopolitical events can affect prices. 

In short, become a student of the commodity. The more you know about its fundamentals, the better prepared you’ll be.

2. Choose Your Trading Method

Decide on the method you want to use to get access to soft commodities trading. There are a few main ways to trade soft commodities:

• Futures Contracts: The traditional way to trade commodities. This gives direct exposure to the commodity’s price. However, futures trading can be complex as contracts have expiry dates, specific lot sizes (e.g., 37,500 lbs of coffee per contract), and may require substantial capital and understanding of leverage. Professional traders and producers often use this method to hedge against price fluctuations, and is less suitable for retail traders.
• CFDs: If futures sound intimidating, many retail traders use CFDs to trade soft commodities. With commodity CFDs, you can speculate on soft commodity prices without dealing with the actual futures contract details. For example, on Switch Markets, you might trade a CFD that tracks the price of sugar or coffee. The main benefit of CFDs is simplicity and flexibility. With them, you can often trade fractional contract sizes, and there’s no expiry (brokers offer “spot” CFD prices that mirror the underlying futures continuously, and rollover CFD contracts).
• ETFs: We can also have exposure through ETFs, stocks of commodity producers, or even options. ETFs offer a simple, lower-risk way to track commodity prices without trading futures directly. Stocks of companies in the commodity supply chain give indirect exposure, though they come with company-specific risks. And for more advanced traders, options on futures or ETFs allow for leveraged plays or hedging strategies with defined risk.

3. Open a Trading Account on a Suitable Platform

Once you know which route you want (futures, CFDs, ETFs, etc.), you’ll need an account that provides access to those instruments. If you opt for futures, that might mean opening an account with a commodities/futures broker (and possibly getting exchange membership or using a futures commission merchant platform). 

For CFDs or commodity ETFs, a retail broker or stockbroker will do. For example, Switch Markets offers trading in many commodities via CFDs.

If you’re brand new, we suggest you practice on a demo account first. Most platforms (including Switch Markets) let you trade with virtual money. This is a risk-free way to get familiar with how soft commodity prices move, how to place orders, and how leverage works.

4. Analyze the Market and Select Your Trade

Use analysis to pick your trade entry. Many traders combine fundamental analysis (crop reports, weather forecasts, export data) with technical analysis (price chart patterns, technical indicators) to time their trades. For example, if fundamental research says the coffee supply will tighten and charts show a breakout above a resistance price, you might decide to go long on coffee. 

With your account ready, select the specific soft commodity instrument you want to trade on the platform. This could be a CFD named “Coffee” or the ticker of an ETF like “CANE” (for a sugar fund). Check the contract specifications (for CFDs, know the lot size it represents and if there are overnight financing fees; for futures, know the contract month; for ETFs, consider the expense ratio).

5. Set Position Size and Manage Risk

This is super important. Decide how much of the commodity or how many contracts you want to trade, and ensure it aligns with your risk management rules. Soft commodities can be volatile, as daily moves of 1-3% are common, and in extreme cases (like during supply shocks), prices might swing 5-10% in a short time.

Always use stop-loss to cap potential losses. A good rule of thumb is never risk more than a small percentage of your capital on any single trade (e.g., 1-3%). If you’re trading via CFDs, you can often adjust position size to very small units (e.g., 0.1 lot) to fine-tune your risk. 

Managing risk also means keeping an eye on correlations; e.g,. If you go long corn and long wheat simultaneously, you’ve essentially doubled down on grains (they often move together).

Best Soft Commodities ETFs

If trading futures or CFDs isn’t your cup of tea, you can still get exposure to soft commodities through Exchange-Traded Funds (ETFs) and similar funds. They’re great for beginner and retail traders who want a simpler way to invest in commodities without dealing with high leverage or complex contracts. 

Below, we list some of the top soft commodity ETFs and what makes them notable:

Invesco DB Agriculture Fund (DBA)

This is one of the largest and most popular agricultural commodity ETFs, with about $790 million in assets. Invesoc DB Agriculture Fund (DBA) provides broad exposure to a diversified basket of soft commodities in the agricultural markets, including grains (corn, wheat, soybeans) and other softs like sugar and cocoa. 

Essentially, it holds a portfolio of agricultural futures contracts on these commodities, following the DBIQ Diversified Agriculture Index. DBA is often used as a one-stop inflation hedge or diversifier because it doesn’t focus on just one commodity. 

Over the past year, DBA has performed well, returning about +13%. It’s an easy way to bet on agriculture as a whole. 

Keep in mind, as an ETF, it doesn’t have the daily leverage of a futures contract, but it also won’t expire.

Teucrium Corn Fund (CORN)

This ETF is a pure play on corn prices, managed by Teucrium. It holds a mix of corn futures (spread across different contract months to mitigate some roll risk). If you want to invest in corn without trading corn futures directly, CORN is a handy vehicle. 

Over the last year, corn prices faced pressure from strong harvests, and the CORN ETF reflected this with about a -11% return on a 1-year basis. However, corn is a critical crop, so traders keep an eye on it for cyclical opportunities. CORN’s expense ratio is around 2.7%, a bit high (typical for these niche commodity funds).

Teucrium Wheat Fund (WEAT)

WEAT is another single-commodity ETF from Teucrium, targeting wheat prices. It gained popularity in 2022 when wheat prices spiked (due to geopolitical events affecting supply). The fund holds Chicago wheat futures. 

In the most recent year, wheat prices pulled back significantly (after the prior surge), so WEAT delivered about -16% over the last year. That illustrates how volatile grains can be. Wheat soared to multi-year highs and then gave up those gains as production and exports adjusted. Still, WEAT remains a go-to if you have a view on wheat (for example, if you anticipate a drought or export ban that could tighten supply). 

One thing to watch with WEAT (and CORN, and other Teucrium funds) is the contango effect; if futures prices are higher in the distant months, the fund can have a drag when rolling contracts. But for shorter-term trades around major news (like crop reports), these ETFs do a good job of tracking the spot price moves.

Teucrium Sugar Fund (CANE)

CANE is a smaller ETF that tracks sugar prices (specifically ICE #11 sugar futures). Sugar is considered one of the classic “softs” and often has its own supply-demand story.

Over the past year, sugar prices have actually firmed up, partly due to lower output in some regions, and CANE returned roughly +4.7% on the year. In fact, sugar hit multi-year highs in 2023. 

CANE gives an accessible way to trade those moves without delving into futures. It’s worth noting that CANE’s size is relatively small (around $10 million AUM), so sometimes bid-ask spreads can be a bit wider since it's not as actively traded as other funds.

Teucrium Soybean Fund (SOYB)

SOYB provides exposure to soybean prices, another crucial grain/oilseed in global markets. SOYB holds soybean futures contracts in a similar fashion to CORN and WEAT. The past year saw soybean prices relatively range-bound to slightly down, and SOYB’s 1-year performance was about -7%. 

Demand from China and crop conditions in the U.S. and South America (Brazil, Argentina) largely drive this market.

Like the other Teucrium products, it saves you from the hassle of rolling futures yourself. It can be a good tool if, say, you want to bet on a poor South American crop pushing soy prices up, or conversely, a bumper U.S. harvest pushing them down.

Wrapping Up

As a trader, tapping into soft commodities gives you a chance to engage with tangible, high-impact goods that respond directly to weather shifts, supply cycles, and consumer trends. That connection to the real world is what makes soft commodity trading both intellectually rewarding and financially promising.

Getting started doesn’t require deep pockets or insider knowledge, especially when you get into the soft commodity markets via CFDs. What matters most is a strong grasp of fundamentals, disciplined risk management, and a clear process for identifying opportunities. 

As you step into soft commodities, remember that the market will offer plenty of learning moments. Use each one to refine your approach. Stay consistent, stay curious, and you’ll find that trading softs can become one of the most fascinating parts of your trading journey.

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FAQs

Here are some quick answers to common questions traders often have when getting started with soft commodities.

Is there a soft commodity index?

Yes. Indices like the Bloomberg Softs Index and S&P GSCI Softs Index track soft commodities like coffee, cocoa, sugar, and cotton. They're used to gauge the overall performance of the soft commodity market.

How can I find news about soft commodities?

Speculative investors seeking where to find news updates can check sources like Reuters, Bloomberg, MarketWatch, and USDA reports. Broker platforms and tools like TradingView and Barchart also offer news and alerts. Twitter/X and ag-specific sites like AgWeb are great for real-time info.

What is the outlook for the soft commodity market?

Mixed. After record highs in 2024, prices for commodities like cocoa and coffee may ease slightly in 2025 as supply recovers. However, weather risks and geopolitical factors could keep volatility high. Grains may firm up; overall trend may be slightly bearish, but watch for surprises.