Commodities

Commodities are basic goods interchangeable between producers, such as grains, gold, beef, oil, and natural gas. As an asset class, they are highly speculative and are especially sensitive to economic shifts.

Frequently Asked Questions
  • What is a commodity?

    A commodity is a basic good that is interchangeable with other goods of the same type. They are often used as inputs in the production of other goods or services and while the quality of a given commodity may differ slightly, it is essentially uniform across producers.

  • What commodities do well in inflation?

    Commodities—precious metals, agriculture goods, and oil & gas—have often been positioned as hedges against inflation. However, commodities tend to respond to changes in the dollar's relative strength in international markets rather than domestic inflation pressures.

  • How do commodities markets work?

    Commodities work differently in spot markets and derivatives markets. In spot markets, the buyers and sellers exchange cash for immediate delivery of the commodity. In derivatives markets, the buyers and sellers exchange cash for the right to future delivery of that commodity. Derivatives holders will often roll over or close out their positions before delivery can happen since they aren’t necessarily looking to hold the commodity, but just speculate on its value.

  • What raw materials do auto manufacturers use?

    The automobile industry is one of the largest consumers of the world's raw materials. Some of the most common materials that industry relies on include aluminum, glass, and the iron ore to make steel, as well as petroleum products used to make plastics, rubber, and other special fibers.

Key Terms

Explore Commodities

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Demand for Frac Sand and Concrete Drives Scarcity
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Inside the Federal Land Bank (FLB)
Young entrepreneur presenting project in exclusive boardroom.
Exchange of Futures for Physical (EFP) Definition
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Commodity Research Bureau Index (CRBI)
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Timber Investment Management Organization (TIMO)
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Gross Processing Margin (GPM)
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Hot briquetted iron (HBI) and iron ore pellets stand on display.
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United States Natural Gas Fund (UNG)
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Hotelling's Theory
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Common Resource
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Genetically Modified Food (GMF)
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Farmout
Commoditization Definition
Farm Credit System (FCS)
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Tokyo Commodity Exchange (TOCOM)
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Wholesale Energy
Dow Jones Commodity Index (DJCI)
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Exempt Commodity
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Proved Reserves Definition
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Who Produces the World's Food
Commodities That Move the Markets
Commodity Funds 101
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History of Oil Prices
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Commodities