Commodity

In economics, a commodity is a basic good or service that is interchangeable with other goods of the same type. A commodity must be easily storable over time, that is, not lose its original characteristics. The high standardization that characterizes a commodity allows it to be easily negotiated on international markets.

The term Commodity refers to raw materials, i.e. that particular category of goods that are traded on the market without qualitative differences. More specifically, these are so-called fungible goods, which are therefore replaceable in the satisfaction of the need to which they are linked, independently of who produces them.

The term Commodity came into use in the English language in the 15th century and is derived from the French commodité, used to indicate an advantage or convenience.

Thanks to their characteristics of fungibility, commodities are easily traded on the market and can be used as underlyings for various financial instruments. In fact, there are Commodity Bonds, bonds whose value of capital repayment and interest is indexed to the quotation of a certain raw material, and Commodity Futures, future contracts in which one is obliged to exchange a prefixed quantity of commodity at a prefixed date and at a determined price fixed at the date of negotiation.

Commodities as an asset class represent a very heterogeneous group of goods, with different uses, different specificity and quality, different storage capacity and different intensity of renewability. They can be classified into two macro-categories: Soft Commodity, Hard Commodity.

Commodities deriving from the agricultural and livestock sectors belong to the Soft category and can be divided into:

  • agricultural goods: oats, soybean meal, wheat, corn, soybean oil, soybeans, cocoa, coffee, cotton, timber, orange juice, tobacco, sugar.
  • meat: beef, dairy cattle, pork, pork belly.

Commodities in the energy sector, precious metals and industrial commodities belong to the Hard category. They can then be divided into:

  • precious metals: gold, platinum, silver, palladium;
  • metals: aluminum, cobalt, nickel, copper, zinc, molybdenum, steel, tin;
  • energy: gasoline, ethanol, natural gas, naphtha, petroleum, propane;
  • electrical energy.

However, electrical energy has some peculiarities compared to other commodities:

  • it is derived from other primary energy sources;
  • it must be used immediately;
  • storage and transport involve high costs and waste.
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