A commodity is a basic good that is most often used as input in the production of some other goods or services. Commodities are highly fungible; very little difference exists between a commodity from one producer and the same commodity from another. Thus, commodities are said to be interchangeable.
Commodities are categorized into various classes and subclasses. The major classes of commodities are energy, metals, agricultural produce and livestock.
Energy fuels is required to heat our homes, light our streets, drive our vehicles and power our factories. Approximately 36% of the world’s energy supply comes from crude oil, which is refined to produce other energy products such as gasoline, heating oil, jet fuel, and kerosene. Coal and natural gas are the other two major sources of energy, followed by nuclear and renewable energy.
Precious metals and industrial metals (also known as base metals) form the two subclasses of metals. Gold, silver and platinum are considered precious metals. Major industrial metals include copper, aluminum, zinc, nickel, lead, tin and palladium.
Agricultural produce were the first commodities to be traded and today, they remain the most important as their main product is food – a basic human need. Commodities produced from agriculture is wide ranging with multiple subclasses that include grains, oilseeds and fiber.
The major livestock commodities traded today are related to hogs and cattles. They are lean hogs, pork bellies, live cattles and feeder cattles. The demand for livestock commodities tends to rise along with economic prosperity since meat products are generally more expensive.
One can speculate in commodity prices by trading commodity derivatives such as options and futures via regulated commodity exchanges.
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