Commodities have taken a beating over the past few years. The Bloomberg Commodities Index, which covers 20 commodities, was down 17% for 2014 and so far for 2015 it is down 16.64%. When commodity prices were high, producers added production capabilities to profit from the higher prices. At the same time the companies were increasing production; demand stayed the same or decreased depending on the commodity.

Thus basic economics of supply and demand took over and commodity prices started to come down (not to mention the slowdown in China's economy). With a tumble of close to 33% since the start of 2014, you may be wondering if it is safe to begin buying commodities yet and if so which ones.

Before we get into timing commodity markets and what products to start investing in, it is wise to keep in mind that there can always be a place for some commodity exposure in your overall portfolio. If you are not looking to time the market and are just looking for diversification, then anytime is a good time to get into a commodity. Historically, commodities have a negative correlation to stocks and bonds, thus improving your overall risk profile. Finding a good index or mutual fund with low fees and a broad exposure to many different commodities will be a good approach to take.

If you are looking to make money in commodities on the rebound there are a few things to keep in mind. Look for commodities that can shift production quickly. A great example of this is an agricultural commodity. A farmer can easily adapt to market prices by changing what they plant every year. For example, if sugar prices are down but corn is up, assuming the soil conditions are right, the farmer can move from planting sugar to corn. Then the market has a reduced supply of sugar which will in turn raise prices of that commodity

For commodities like oil, it takes longer to increase production as they need to find the oil, set up the well and begin pumping oil. On the flip side, shutting down oil wells because they are not making money is not as easy as it sounds. There are still fixed costs that will continue even when the well is shut down, thus an oil company may reduce or continue pumping to cover basic costs of the well. Currently few oil companies are reducing production and overall it is staying steady. Commodities like oil that take more time to adjust production, could still be in for more downward direction

No investment is considered safe, unless we are talking about cash. While chances are there will be some commodities that begin to go back up, you can never be guaranteed of timing the market right.

While commodities are down, it depends on the commodity and its industry as to how quickly they can change their production to get prices to go up. Nothing is guaranteed, but commodities like agriculture have the ability to make positive moves up on a faster timeline and provide your best bet. Looming over all commodity use is China, whose growth (or lack thereof) drives prices. 

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