Agricultural Commodities

What is a commodity?

• The generic term for any marketable item produced to satisfy wants or needs.

• An agricultural commodity is a raw material or primary agricultural product that can be bought and sold– copper or coffee

Fungibility

• Fungibility refers to the ability of a product whose individual units are capable of mutual substitution

• For instance, gold in New York is the same as gold in China, as long as it is of the same purity.

• Fungibility lets us trade huge quantities at one price.

• Prices move in direct response to supply and demand.

Types of Commodities

• Soft Commodities are those grown– Hogs, corn, wheat

• Very volatile market, not easy to predict• Hard commodities are mined or extracted– Crude oil, gold, copper

• Easier to handle since materials do not rot and they are more integrated into the industrial process

Commodity Futures

• An agreement to buy or sell a set amount of a commodity at a predetermined price and date