What are commodities?
Commodities can be defined as being typically mass-produced goods which are sold and delivered in bulk (exceptions may be precious or rare metals). They include raw materials, agricultural products, and are usually classified into 3 main categories:
- Agricultural (”Agri”) commodities are crops and animals produced or raised on farms or plantations. Most agricultural commodities such as grains, livestock, and dairy provide a source of food for people and animals across the globe. Non-food agri commodities include cotton, tobacco.
- Metals and minerals commodities encompasses (i) mineral resources like ores, alumina, extracted from mines, (ii) industrial and base metals like steel, copper, aluminium, zinc, nickel (iii) precious metals like gold, silver.
- Energy commodities include crude oil, heating oil, natural gas, and gasoline.
Commodities all typically have the following features:
- They are natural resources/ raw materials needed in every economy
- The product is fairly uniform
- Supplies are usually limited by geographical locations
- Price volatility can be significant
- They are produced, shipped/delivered in bulk quantities for economies of scale
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