UNDERSTANDING COMMODITIES MARKET

What is a commodity?

Commodities are products that can be bought, sold or traded in different kinds of markets. Commodities are the raw materials that are used to create products which are consumed in everyday life around the world, from food products in India to building new homes in Europe or to running cars in the US. 

NCDEX Commodity

                                        There are two main types of commodities: 

                                        Soft commodities – agricultural products such as corn, wheat, coffee,                                                     cocoa, sugar and soy bean; and livestock. 

                                        Hard commodities – natural resources that need to be mined or processed                                             such as crude oil, gold, silver and rubber. 

Throughout history, commodities have played a major role in shaping the global political economy and have affected the lives and livelihoods of people. History is replete with examples of how shortage of critical commodities sparked huge public outcry and social unrest. Of late, the world community is concerned over the environmental and health costs of production and consumption of certain commodities and impact on society.

Which kinds of commodities are traded in the world?

In the global markets, there are four categories of commodities in which trading takes place:

                                        Energy (e.g., crude oil, heating oil, natural gas and gasoline). 

                                        Metals (e.g., precious metals such as gold, silver, platinum and palladium;                                            base metals such as aluminium, copper, lead, nickel, tin and zinc; and                                                    industrial metals such as steel).

                                        Livestock and meat (e.g., lean hogs, pork bellies, live cattle and feeder                                                  cattle). 

                                        Agricultural (e.g., corn, soy bean, wheat, rice, cocoa, coffee, cotton and                                                  sugar).

Why are commodities important?

Commodities play an important role in the economic development of all countries – developed, developing and least developed countries (LDCs). In the case of LDCs, numbering 48 at present, more than two-thirds of the labour force is dependent on agriculture. In India, too, over 60 percent of the population is dependent on agriculture for livelihood. According to UNCTAD statistics, 27 LDCs are commodity exporters. In fact, commodities accounted for almost 80 percent of LDCs’ goods export during 2007-09. Given the LDCs’ heavy dependence of commodities, any development