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Agricultural Commodities
What is a commodity?
• The generic term for any marketable item produced to satisfy wants or needs.
• An agricultural commodity is a raw material or primary agricultural product that can be bought and sold– copper or coffee
Fungibility
• Fungibility refers to the ability of a product whose individual units are capable of mutual substitution
• For instance, gold in New York is the same as gold in China, as long as it is of the same purity.
• Fungibility lets us trade huge quantities at one price.
• Prices move in direct response to supply and demand.
Types of Commodities
• Soft Commodities are those grown– Hogs, corn, wheat
• Very volatile market, not easy to predict• Hard commodities are mined or extracted– Crude oil, gold, copper
• Easier to handle since materials do not rot and they are more integrated into the industrial process
Commodity Futures
• An agreement to buy or sell a set amount of a commodity at a predetermined price and date