Commodity Paper

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. Warehouse Financing

    A form of inventory financing in which loans are made to manufacturers ...
  2. Commodity Market

    A physical or virtual marketplace for buying, selling and trading ...
  3. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  4. Commodity ETF

    Exchange-traded funds that invest in physical commodities such ...
  5. Advance Rate

    The maximum percentage of the value of a collateral that a lender ...
  6. Commodity Price Risk

    The threat that a change in the price of a production input will ...
Related Articles
  1. Investing Basics

    When Will it Be Safe to Buy Commodities?

    When will it be safe to buy commodities (and which ones)? A closer look at the commodities markets and how they move.
  2. Professionals

    Commodities as Alternative Investments

    CFA Level 1 - Commodities as Alternative Investments. Learn the types of commodity investment opportunities and how they can help hedge against inflation. Covers passive and active investing ...
  3. Investing Basics

    Understanding the Commodity Market

    There are currently 50 physical and virtual commodity markets worldwide where almost 100 primary commodities trade through the exchange of ownership rights.
  4. Credit & Loans

    What Is Collateral?

    Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup ...
  5. Options & Futures

    All About Liquid Commodities

    You might hear 'liquid commodities' and think of an auction, but they're actually a high-volume, fast paced financial product suitable for day traders.
  6. Investing Basics

    How To Invest In Commodities

    Find out which futures, options or funds will be your perfect commodity portfolio fit.
  7. Markets

    What are Commodities?

    A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. Commonly traded commodities include gold, beef, oil, lumber and natural gas. Additional ...
  8. Options & Futures

    An Overview Of Commodities Trading

    Commodities markets, both historically and in modern times, have had tremendous economic impact on nations and people. Investing in commodities can quickly degenerate into gambling or speculation ...
  9. Investing

    3 Reasons to Invest in Discounted Commodities

    Though they're selling at depressed prices, there are several reasons that it could make sense to invest in commodities now.
  10. Credit & Loans

    What are the Five C's of Credit?

    The five C’s of credit are what banks and other lenders evaluate about a potential borrower when making a lending decision. The five C’s are Character, Capacity, Capital, Collateral and Conditions. ...
RELATED FAQS
  1. Who sets the price of commodities?

    Commodities are extremely important as they are essential factors in the production of other goods. A wide of array of commodities ... Read Answer >>
  2. Can commodities also be investments?

    Learn about the commodities trade and several different ways investors may participate. Find out about some of the advantages ... Read Answer >>
  3. What's the difference between a commodity and a product?

    Understand the difference between commodities and products, and learn how they are connected to each other and to market ... Read Answer >>
  4. Do hedge funds invest in commodities?

    Learn about hedge funds that invest in commodities. Read about Commodity Trading Advisors who focus specifically on trading ... Read Answer >>
  5. Can mutual funds invest in commodities?

    Learn how investors can use commodity mutual funds to diversify their portfolios, and discover why mutual funds may be less ... Read Answer >>
  6. What is the difference between asset-based lending and asset financing?

    In the most common usage, the terms "asset-based lending" and "asset financing" refer to the same thing. Asset-based lending ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center