Commodity Paper

AAA

DEFINITION of 'Commodity Paper'

A loan or advance for which raw materials owned by the borrower serve as collateral. Bills of lading (if the commodities are in transit) or warehouse receipts or inventory lists (if the commodities are in storage) may be used as proof of collateral. The lender does not actually take possession of the commodities unless the borrower defaults on the loan.

BREAKING DOWN 'Commodity Paper'

Commodities are raw materials (production goods) such as oil, grain, gold, copper, coffee, cocoa, lumber, cotton, wheat, corn, sugar, and natural gas. Different tools are available for investing in commodities, such as futures, options, stocks, ETFs and ETNs. Commodity paper was at the center of the Salad Oil Scandal. Allied Crude Vegetable Oil used fraud to make inventory appear many times what it was, and then borrowed against the erroneous inventory receipts.

RELATED TERMS
  1. Commodity Market

    A physical or virtual marketplace for buying, selling and trading ...
  2. Chicago Board Of Trade - CBOT

    A commodity exchange established in 1848 that today trades in ...
  3. Raw Materials

    A material or substance used in the primary production or manufacturing ...
  4. Salad Oil Scandal

    One of the worst corporate scandals of its time. It occurred ...
  5. Delivery Date

    1. The final date by which the underlying commodity for a futures ...
  6. Futures

    A financial contract obligating the buyer to purchase an asset ...
Related Articles
  1. Active Trading

    Grow Your Finances In The Grain Markets

    Hedging with futures can protect those who buy and sell commodities from adverse price movements.
  2. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  3. Options & Futures

    Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.
  4. Options & Futures

    Trading The Soft Commodity Markets

    Learn the contract specifications for a few of the most heavily traded commodities.
  5. Active Trading

    How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
  6. Options & Futures

    Commodities That Move The Markets

    Find out how the everyday items you use can affect your investments.
  7. Professionals

    Are Hedge Fund ETFs Suitable for Your Portfolio?

    Are hedge fund ETFs right for you? Here's what investors need to consider.
  8. Chart Advisor

    Traders Step Back to Assess Commodities Damage

    Traders are turning to these exchange-traded notes and exchange-traded funds to analyze key commodities and determine what could be coming next.
  9. Investing News

    Oil or Gold: Which Will Recover First?

    Not sure where oil and gold are headed? The answer is complex.
  10. Investing Basics

    Explaining Forward Rate Agreements

    Forward rate agreement (FRA) refers to an interest rate or foreign exchange hedging strategy.
RELATED FAQS
  1. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  2. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  3. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  4. How are American Depository Receipts (ADRs) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
  5. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  6. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  2. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  3. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  4. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  5. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
  6. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered. Until the call ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!