Commodity

From Wikipedia, the free encyclopedia

This article does not cite any references or sources. (June 2007)
Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed.

This article or section is in need of attention from an expert on the subject.
Please help recruit one or improve this article yourself. See the talk page for details.
Please consider using {{Expert-subject}} to associate this request with a WikiProject

This article or section is missing information about: Economics,sociology.
This concern has been noted on the talk page where it may be discussed whether or not to include such information.(March 2008)

For the Marxist definition of a commodity, see Commodity (Marxism).

A commodity is anything for which there is demand, but which is supplied without qualitative differentiation across a market. In other words, copper is copper. Rice is rice. Stereos, on the other hand, come in many varieties of quality. And, the better a stereo is, the more it will cost. Whereas, the price of copper is universal, and fluctuates daily based on global supply and demand.

One of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets. Generally, these are basic resources and agricultural products such as iron ore, crude oil, coal, ethanol, sugar, coffee beans, soybeans, aluminum, rice, wheat, gold and silver.

Commoditization occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the intellectual capital necessary to acquire or produce it efficiently. As such, goods that formerly carried premium margins for market participants have become commodities, such as generic pharmaceuticals and silicon chips.

Linguistically, the word commodity came into use in English in the 15th century, derived from the French word "commodité", similar in meaning to "convenience" in terms of quality of services. The Latin root meaning is commoditas, referring variously to the appropriate measure of something; a fitting state, time or condition; a good quality; efficaciousness or propriety; and advantage, or benefit. The German equivalent is die Ware, i.e. wares or goods offered for sale. The French equivalent is "produit de base" or "matière première" like energy, goods, or industrial raw materials.

A commodity's value changes over time.

[edit] Commodity trade

Main article: Futures exchange

In the original and simplified sense, commodities were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer are considered equivalent. It is the contract and this underlying standard that define the commodity, not any quality inherent in the product.

Commodities exchanges include:

Markets for trading commodities can be very efficient, particularly if the division into pools matches demand segments. These markets will quickly respond to changes in supply and demand to find an equilibrium price and quantity. In addition, investors can gain passive exposure to the commodity markets through a commodity price index.