Finding out more about the basic units that create a habitable living environment for all of us.
To put it simply, commodities stem from any item that has value. They are basic goods used in commerce, as inputs in the production of other goods and services. Essentially, we consume these raw materials to create a viable living world for ourselves.
What then, may be considered a commodity in trade?
Commodities are often generic and have the same basic value. Hence, they are usually interchangeable with other commodities of the same type. The quality of the goods may only differ slightly, but are still fundamentally uniform across all producers.
As such, it is typically trapped in a vicious price cycle. Due to their limited differentiation, they are easily sold and traded throughout the world. While there are instances of producers attempting to create a difference in products based on where there were grown — *cough* Florida oranges *cough*, these efforts ultimately yield little success.
In addition to this, commodities have extremely active markets, giving people the option of getting in and out of an investment without having to face the difficulty of trying to find a buyer or seller for their securities.
If the bulk of information above was too much to digest, just know that commodities generally satisfy the following criteria:
Tradability — a viable investment vehicle to help you trade the commodity
Deliverability — all commodities need to be physically deliverable
Liquidity — commodities usually have an active and well-established market with buyers and sellers constantly transacting with each other
Having clarified that, what are some of the most highly-traded commodities?
TOP 10 MOST TRADED COMMODITIES
1. Crude oil
No surprise there — considering its global demand and the rate at which our energy consumption is spiralling out of control in our rapidly industrialising economies, there will always be a pressing demand for sources of energy and fuel.
With over 2.25 billion cups of coffee consumed worldwide on a daily basis, coffee is actually the second most traded commodity in the world, falling a little short behind crude oil — and one of the oldest as well.
3. Natural Gas
When natural gas is a source of energy and fuel used for almost everything, it is no doubt one of the most highly traded commodities in the world, despite growing efforts to move towards renewable energy resources.
Gold has always been a valuable commodity throughout history, especially among investors with its steadily increasing value over recent years.
5. Brent Oil
Serving as a benchmark price for purchases of oil worldwide, Brent oil is used most widely throughout Europe and Africa.
Silver has historically been both a safe investment and a source of stability in investment portfolios. Above it’s aesthetic value, it is also used in high precision medical equipment and industrial processes.
Extracted from sugar cane, sugar is traded in just about every country in the world. By 2030, the annual consumption of sugar will exceed 257 million tons.
Considered as one of the most versatile agricultural crops, the advent of biofuels has also especially increased the demand for corn over the last decade. Corn has become such an important commodity that United States has over 80 million acres dedicated to its production.
Involved in the production of numerous food products that include cereal, bread and flour, wheat becomes not only an essential source of food around the world but is also an indispensable commodity due to the world’s reliance on wheat.
Cotton has been one of the oldest known fibres on the planet and has been traded for thousands of years. The fact that most of our apparel is made out of cotton justifies its position as one of the world’s highly traded commodities.