Types of Commodities

Commodities are products that are bought and sold on an open market. Generally, commodities are considered extremely raw materials that are standard from market to market and producer to producer. For example, a bushel of corn is a commodity that is virtually standard all around the world. The same is true for crude oil, pork bellies, and any of the other various simple materials that trade on the open exchanges.

Commodities are Simple Products

Commodities are what drive the world's manufacturing. Think of virtually any simple resource, and it will likely appear on the commodities markets. The world market of commodities never stops, both in providing new supply and generating demand.

The commodities markets are where the most basic of prices are set. There is a reason why products cost the same all around the world; it is because the basic raw materials are all the same cost, regardless of the currency, with the biggest difference being the cost of labor. To produce one home in the United States would cost just as much as the same home in China, but after adding in the cost of transport and labor, the US produced home will cost considerably more.

Energy Products

The dramatic climb of crude oil in the commodities markets showcases an important type of commodity: energy. This type of commodity is inclusive of all types of energy that can be utilized to power forth residential and industrial needs, including petroleum, propane, coal, crude oil, and natural gas. In recent years, this type of commodity has experienced some of the greatest price volatility.

Meat Products

A commonly traded type of commodity is meat products, inclusive of pork bellies, hogs, and even live cattle. While these commodities are typically traded on the Kansas City Board of Trade (KCBT), investors can trade meat commodities on other markets as well. While this type of commodity has seen the least volatility, the prices are influenced by the price of grain commodities, which are utilized to feed livestock.

Grain Products

Along the lines of meat products are grain products, which are not only important for consumer consumption, but for livestock feeding as well. Included in this type of commodity are bushels of wheat, rice, corn, oat, and soybean. Most of the trading of grain commodities are conducted on the Chicago Board of Trade (CBOT), typically traded as futures, which forecast the supply, demand, and price of the particular commodity in the future. Should investors believe that a shortage in supply may be on the horizon, these commodity shares will rise in value, and vice-versa. This type of commodity trading is most active in spring and summer, when crop data is presented.

Soft Products

While most types of commodities are raw, there is a category of softly manufactured products, also known as "soft products." These types of trades involve sugar, cocoa, coffee, cotton, and even orange juice. The most active exchange for soft products is the Coffee, Sugar, and Cocoa Exchange (CSCE).

Metal Commodities

Witnessed in the tremendous rise in price in gold, silver, and even copper, metal commodities have an inverse relationship with currency strength. Should currency and economic uncertainty arise, investors place their funds into metals. Trading this type of commodity allows to speculate on the future price of precious and industrial metals.

With great diversity among industries and resources, trading commodities can be an excellent way to diversify your portfolio, especially when the Dow Jones and NASDAQ are not performing well. Backed by contracts of tangible resources, commodity trading offers investors an ability to speculate and forecast future prices, often returning a solid profit.