What are commodities
Commodities are tangible assets that range from wheat to gold to oil. The U.S. government defines commodities in the Commodity Exchange Act of 1936. The act covers trading in agricultural goods and natural resources. While the law treats financial products as commodities, it does not consider them commodities. The law also prohibits trading onions as a commodity.
Types of commodities
Due to the variety of commodities, they are grouped into three main categories: agriculture, energy, and metals.
Agriculture
Agricultural commodities include:
– Beverages such as sugar, cocoa, coffee, and orange juice. Referred to as “soft commodities”.
– Grains like wheat, soybeans, soybean oil, rice, oats, and corn.
– Animals that become food, such as live cattle and lean hogs.
– Non-food items such as cotton and lumber.
Energy
The energy category includes crude oil, RBOB gasoline, natural gas, and heating oil. Trading in commodities is a significant factor in determining oil prices.
Metals
Metals include extracted commodities like gold, copper, silver, and platinum. The London Metal Exchange has announced it will launch futures for metals used in batteries. The exchange expects a large market for such metals with the increasing demand for electric vehicles.
How the commodities market works
Commodity trading sets prices for all commodities. As a result, the prices of the most important items you use daily can be volatile. In some cases, such as gasoline, they change daily.
Commodities and their impact on food prices
Commodity trading particularly affects low-income individuals around the world, who spend more of their limited income on food and transportation. It also makes agriculture riskier. This is one reason the U.S. government provides support to farmers.
Markets and regulation of commodities
Commodity markets are located in Chicago, New York, and Atlanta. The CME Group owns all but one. The Chicago Board of Trade focuses on agricultural commodities, while the Chicago Mercantile Exchange specializes in trading grains. The New York Mercantile Exchange focuses on energy and metals.
Commodities as a business term
In business, commodities can be defined as any good or service that is bought and sold exclusively based on price. These include traded commodities. They can also include products that do not differ from one another based on branding, benefits, or other distinguishing features.
Frequently Asked Questions (FAQs)
– What are commodity stocks?
– Why is investing in commodities relatively risky?
Sources
– U.S. Commodity Futures Trading Commission
– Cornell Law School
– London Metal Exchange
– Securities and Exchange Commission
– Bureau of Labor Statistics
– U.S. Commodity Futures Trading Commission
– Iowa State University
Source: https://www.thebalancemoney.com/what-are-commodities-3306236
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