What Is a Commodity

What is a Commodity? A Commodity is a “good” for which there is a demand for. There are “soft commodities”, which are goods that are grown and there are “hard commodities”, which are goods that are obtained through mining or extraction processes. There also others that have NO underlying product. To break this down further so you can see the difference, we have commodities in Agriculture, Energy, Equity Index, Forex or FX as it is better known by. Metals and Interest Rates just to name a few. Different exchanges trade different commodities.

So to break these commodities down even further I will start with agriculture. First off, “Grains & Oil seeds. There is corn, wheat, soybeans, soybean meal, soybean oil, crude palm oil, oats and rough rice.

Under the same header of “Agriculture” we have “Livestock”. This includes: Live cattle, Feeder cattle, Lean hogs and Frozen pork bellies. People laugh at Pork bellies but what do you think happened to the prices when the commodity trading communities first heard the words “Swine Flu”? Think about that. There is “Dairy”. There are various “Milks”, Milk powder, whey, butter. “Softs”: Cocoa, Coffee, Cotton, Sugar. “Forest”: Lumber and Pulps. Enough on “Agriculture”, let’s move on.

The next header I move to is “Energy”. I’m sure most people find this one interesting because of it’s popularity in the news on how it affects our pocketbooks. The first title under energy is: “Crude Oil”. But did you know that under the title of Crude Oil there are 6 other oils beside “Light Sweet Crude Oil”? Which by the way, closed at 90.85 per barrel Friday on the floor, but Globex has it at 91.10. More on Globex MUCH later. There is also “Gulf Coast Sour Crude” for one. I never have tasted oil, not intentionally anyway. So how do you tell if it turned sour? Food for thought.

Another header is FX or Forex. This is a whole world all by itself. The main titles under this header are: “G10 Currency Pairs” and “Emerging Market Currency Pairs”. G10 is of course the top 10 industrial nations which has been increased to 11 but they never changed the name. Currency pairs is the comparison of one of the top 10 currency dollars against another dollar, typically the U.S. Dollar or USD as it is more popularly known and traded as. Emerging Market Pairs is of course just it says. Newcomers doing well, or not. Forex trading is huge and deserves a lot of attention if one is going to get involved. Not that any other Commodity deserves less, but the fact of following different countries currency rates comes under close scrutiny.

The next header is “Metals”. What comes to your mind first? GOLD of course. Gold is under the title of “Precious”. Also under that same title is: Silver, Platinum and Palladium. Under the title of “Base” is Copper. Another is Uranium. You can’t actually take possession of any Uranium. Uranium futures are a hedging tool for producers and users of uranium. More on “Hedging” at a later time. By the way, August Gold closed at 1502.80 and Globex has it at 1503.40.

Another header is “Interest rates”. Under that header is “STIR” Short term interest rates. And under STIR is Eurodollar, Euro yen, 30 day federal funds, and 13 week T-Bills. The title “US Treasury Futures” has: US T-Bonds, 2,3,5, and 10 year T-Notes, just to name a few. More titles are “Swap Futures”, Interest Rate Index Futures, and Sovereign yield spreads. Under those titles are many itemized listings. I don’t want to bore the reader with everything available.

I saved the best header for last. I say the best because this is the one I love. It is called the “Equity Index”. The main titles under Equity Index are “US Index” and “International Index”. Under the International Index is basically the Nikkei. BUT under the US Index you have listings for: S&P 500 and many variations. NASDAQ and its variations and DJIA (Dow Jones Industrial Average) or DOW, and its variations. I like these because you can trade the WHOLE index. All those little stocks make up the index and you can trade the entire entity. We all have our “pet peeves”, and in trading, the S&P 500 is mine.

I have now covered what a commodity is and a FEW of the different world products the word covers. Did you find a commodity that spiked your interest or know a little something about? If so, study it as we move along. Not familiar with anything? You just learned a LOT! If you’re not new to commodities I’m probably boring you to death. BUT if you are new, you have to be amazed at the opportunities that are available in today’s commodity markets.

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