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.

INVESTOPEDIA EXPLAINS '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. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  3. Salad Oil Scandal

    One of the worst corporate scandals of its time. It occurred ...
  4. Raw Materials

    A material or substance used in the primary production or manufacturing ...
  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. Stock Analysis

    What Would Be Of BreitBurn Energy This Summer?

    This Spring, BreitBurn Energy Partners' banks will take a closer look at its credit facility and redetermine its borrowing base.
  8. Chart Advisor

    It Might Not Be The Time To Buy Into Steel and Iron

    This past week, commodity traders turned their attention toward stocks in the steel and iron sector, but based on the charts it may be too early to take a position.
  9. Investing Basics

    What Is Cold Storage For Bitcoin And Why Does It Matter?

    With increasing incidents of hacking in the world of digital currency, cold storage offers a safe place for the cryptocurrency owners.
  10. Economics

    Sectors Hit by Sanctions on North Korea

    We look at the sectors most affected by the US sanctions imposed against North Korea.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center