What are commodities?

Commodities are commodities in a raw state or of simple industrialization, traded on a world scale. Trading is established in the financial market, with prices usually in dollars and which fluctuate according to international supply and demand.

In a commodity there is little differentiation between the same commodity produced by one producer compared to another. Oil, for example, is the same commodity regardless of which company has extracted it. The same happens in the world financial market with currencies.

Most of the time, commodities are made up of natural resources and their production and consumption are influenced by climatic and economic factors, such as those produced by the agricultural sector.

Those that are minimally industrialized have mass production and little differentiation. Even among varied producers, the goods have a uniform degree of quality.

Among the most common commodities are those that serve as raw material for the production of other goods. An example are agricultural products, called soft commodities, such as soy, sugar and corn.

Gold, iron and copper are among the most traded commodities and are extraction commodities or minerals, called hard commodities.

Among the most traded Brazilian commodities are soy, iron ore, oil and meat. The world price of these has a great impact on the national economy.

Types and examples of commodities

  • Agricultural Commodity: Soy, wheat, coffee.
  • Mineral Commodity: Oil, iron ore, gold.
  • Financial Commodity: dollar, euro, real.
  • Environmental Commodity: carbon credits, water.
  • Energetic Commodity: wind energy, electricity.
  • Chemical Commodity: sulfuric acid, sodium sulfate.

How to invest in commodities?

Selling and buying commodities can be done on a futures market. In this market, commodities are traded under standardized contracts for each commodity traded.

Originally, these contracts were created to protect those who were interested in buying the goods in the future, with their production and transportation.

Another common way of trading futures contracts is through speculation. This is the case where traders trade with the objective of making profits from the variation in commodity prices.

Through the Futures Market, it is possible to invest in commodity contracts. As with the stock market, access to it is through authorized brokers.

Future contract

As it deals with a little variable asset, its transactions may involve goods that were not even planted, using agricultural commodities as an example. Soy bags can be traded even if they do not physically exist in the silos.

In the future contract, a producer can negotiate the next harvests on the exchange. The merchandise will not necessarily be delivered to the buyer, who in turn may have already traded the securities with another agent due to price volatility, in the pursuit of profit.

Major commodity exchanges

Among the main commodity exchanges in the world are:

  • Euronext LIFFE (ELMC), European specialist in agricultural products;
  • London Metal Exchange (LME);
  • New York Mercantile Exchange (NYMEX), which mainly trades energy and metals contracts;
  • Chicago Board Of Trade (CBOT), the oldest options and futures exchange in the world, dominated by cereals.

In Brazil, commodities are traded by BM&F Bovespa, which is currently known as B3. It is also possible to find mini-contracts, which are a smaller form of future contracts.