Commodities are agricultural products and raw materials. In other words, things that mining companies, oil companies, and farmers produce or extract. For example, iron ore is a commodity, like sugar and grain.
Some mass-produced non-specialized goods or services are also commodities, such as computer memory or chemicals.
According to the Cambridge Dictionary, a commodity is:
“A substance or product that can be traded in large quantities, such as petroleum, metals, grains, coffee, etc.”
Commodity – price
Goods are generally goods or services that we trade on based solely on its price and not on its features or quality. For example, when people buy electricity, they only look at the price, not the quality. All electricity is essentially of the same quality.
What is commodity market?
If you want to buy or sell a commodity, you go to a commodity market.
It is similar to the stock market. However, in the stock market, traders buy and sell shares (stocks).
There are more than 50 commodity markets around the world. They facilitate the trading of investments in almost a hundred commodities.
Commodity markets have a great influence on people’s daily lives. It determines, for example, the price of electricity. Electricity prices affect us all.
Futures contracts are the oldest way to invest in commodities. The investor obtains a futures contract with the physical asset.
Two types
There are two main types of goods:
Agricultural products: such as wheat, corn, sugar and cocoa. An agricultural good is a soft commodity.
Raw Materials: such as oil, silver and gold. A raw material is a hard commodity.
Commodity traders come in four narrow categories:
- Agro-food products: including soybeans, wheat, corn, cocoa, coffee and cotton. Sugar also falls into this category.
- Cattle and Meat: Examples include lean pork, pork belly, eggs, poultry, live and fed cattle.
- Metals: including copper, zinc, nickel, platinum, silver and gold.
- Energy: such as crude oil, gasoline (UK: gasoline) and fuel oil. Natural gas is also included in the “energy” category.
