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In
economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. ...
, a commodity is an economic
good 175px, In many religions, angels are considered to be good beings. In most contexts, the concept of good denotes the conduct that should be preferred when posed with a choice between possible actions. Good is generally considered to be the oppos ...
, usually a
resource A resource is a source or supply from which a benefit is produced and that has some utility. Resources can broadly be classified upon their availability — they are classified into renewable and non-renewable resources. They can also be classif ...

resource
, that has full or substantial
fungibility In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a commodity good is typically determined as a function of its market as a whole: well-established physical commodities have actively traded spot and
derivative In mathematics Mathematics (from Ancient Greek, Greek: ) includes the study of such topics as quantity (number theory), mathematical structure, structure (algebra), space (geometry), and calculus, change (mathematical analysis, analysis). ...
markets. The wide availability of commodities typically leads to smaller
profit margin Profit margin, net margin, net profit margin or net profit ratio is a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue. : \text = = Overview Profit margin is calculated with selling price ( ...
s and diminishes the importance of factors (such as
brand name A brand is a name, term, design, symbol or any other feature that identifies one seller's good or service as distinct from those of other sellers. Brands are used in business Business is the activity of making one's living or making money ...

brand name
) other than price. Most commodities are
raw material A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished products, energy, or intermediate materials that are feedstock for future finished products. As fe ...
s, basic resources,
agricultural Agriculture is the science, art and practice of cultivating plants and livestock. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated Domestication is a sustained multi-generat ...
, or
mining Mining is the extraction of valuable minerals or other geological materials from the Earth, usually from an ore body, lode, vein, seam, reef, or placer deposit. These deposits form a mineralized commodity that is of economic interest to t ...
products, such as
iron ore Iron ores are rocks and minerals from which metal A metal (from Ancient Greek, Greek μέταλλον ''métallon'', "mine, quarry, metal") is a material that, when freshly prepared, polished, or fractured, shows a lustrous appearance, and ...
,
sugar Sugar is the generic name for Sweetness, sweet-tasting, soluble carbohydrates, many of which are used in food. Table sugar, granulated sugar, or regular sugar, refers to sucrose, a disaccharide composed of glucose and fructose. Simple sugars, ...
, or
grain A grain is a small, hard, dry seed, with or without an attached husk, hull or fruit layer, harvested for human or animal consumption. A grain crop is a grain-producing plant. The two main types of commercial grain crops are cereals and legumes. A ...
s like
rice Rice is the seed A seed is an embryonic plant enclosed in a protective outer covering. The formation of the seed is part of the process of reproduction Reproduction (or procreation or breeding) is the biological process by which n ...
and
wheat Wheat is a grass widely Agriculture, cultivated for its seed, a cereal grain which is a worldwide staple food. The Taxonomy of wheat, many species of wheat together make up the genus ''Triticum''; the most widely grown is common wheat (''T. aest ...

wheat
. Commodities can also be mass-produced unspecialized products such as chemical substance, chemicals and computer memory.


Etymology

The word ''commodity'' came into use in English in the 15th century, from the French '':wikt:commodité#French, commodité'', "amenity, convenience". Going further back, the French word derives from the Latin '':wikt:commoditas#Latin, commoditas'', meaning "suitability, convenience, advantage". The Latin word '':wikt:commodus#Latin, commodus'' (from which English gets other words including ''commodious'' and ''accommodate'') meant variously "appropriate", "proper measure, time, or condition", and "advantage, benefit".


Description


Characteristics

In economics, the term ''commodity'' is used specifically for economic goods that have full or partial but substantial
fungibility In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
; that is, the market treats their instances as equivalent or nearly so with no regard to who produced them. Karl Marx described this property as follows: "From the taste of
wheat Wheat is a grass widely Agriculture, cultivated for its seed, a cereal grain which is a worldwide staple food. The Taxonomy of wheat, many species of wheat together make up the genus ''Triticum''; the most widely grown is common wheat (''T. aest ...

wheat
, it is not possible to tell who produced it, a Serfdom in Russia, Russian serf, a French peasant or an English capitalist." Petroleum and copper are examples of commodity goods: their supply and demand are a part of one universal market. Non-commodity items such as stereo systems have many aspects of product differentiation, such as the brand, the user interface and the perceived quality. The demand for one type of stereo may be much larger than demand for another. The price of a commodity good is typically determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and
derivative In mathematics Mathematics (from Ancient Greek, Greek: ) includes the study of such topics as quantity (number theory), mathematical structure, structure (algebra), space (geometry), and calculus, change (mathematical analysis, analysis). ...
markets.


Hard and soft commodities

Soft commodity, Soft commodities are goods that are grown, such as
wheat Wheat is a grass widely Agriculture, cultivated for its seed, a cereal grain which is a worldwide staple food. The Taxonomy of wheat, many species of wheat together make up the genus ''Triticum''; the most widely grown is common wheat (''T. aest ...

wheat
, or
rice Rice is the seed A seed is an embryonic plant enclosed in a protective outer covering. The formation of the seed is part of the process of reproduction Reproduction (or procreation or breeding) is the biological process by which n ...
. Hard commodities are mining, mined. Examples include gold, silver, helium, and petroleum, oil. Energy commodities include electricity, gas, coal and oil. Electricity has the particular characteristic that it is usually uneconomical to store, and must therefore be consumed as soon as it is produced.


Commoditization

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 Profit margin, margins for market wikt:participation, participants have become commodities, such as Generic drug, generic pharmaceuticals and dynamic random-access memory, DRAM chips. An article in ''The New York Times'' cites multivitamin supplements as an example of commoditization; a 50 mg tablet of calcium is of equal value to a consumer no matter what company produces and markets it, and as such, multivitamins are now sold in bulk and are available at any supermarket with little brand differentiation. Following this trend, nanomaterials are emerging from carrying premium profit margins for market participants to a status of commodification. There is a spectrum of commoditization, rather than a binary distinction of "commodity versus differentiable product". Few products have complete undifferentiability and hence fungibility; even electricity can be differentiated in the market based on its method of generation (e.g., fossil fuel, wind, solar), in markets where electricity market#Retail electricity market, energy choice lets a buyer opt (and pay more) for renewable methods if desired. Many products' degree of commoditization depends on the buyer's mentality and means. For example, milk, eggs, and notebook paper are not differentiated by many customers; for them, the product is fungible and lowest price is the main decisive factor in the purchasing choice. Other customers take into consideration other factors besides price, such as environmental sustainability and animal welfare. To these customers, distinctions such as "Organic food, organic versus not" or "Free-range eggs, cage free versus not" count toward differentiating brands of milk or eggs, and percentage of recycled content or Forest Stewardship Council Certified wood, certification count toward differentiating brands of notebook paper.


Global commodities trading company

This is a list of companies trading globally in commodities, descending by size as of October 28, 2011. # Vitol # Glencore International AG # Trafigura # Cargill # Salam Investment # Archer Daniels Midland # Gunvor (company) # Mercuria Energy Group # Noble Group # Louis Dreyfus Group # Bunge Limited # Wilmar International # Olam International


Commodity trade

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 were considered equivalent. On a commodity exchange, it is the underlying standard stated in the contract that defines the commodity, not any quality inherent in a specific producer's product. Commodities exchanges include: * Bourse Africa (formerly GBOT) * Bursa Malaysia Derivatives (MDEX) * Chicago Board of Trade (CBOT) * Chicago Mercantile Exchange (CME) * Dalian Commodity Exchange (DCE) * Euronext.liffe (LIFFE) * Kansas City Board of Trade (KCBT) * London Metal Exchange (LME) * Marché à Terme International de France (MATIF) * Mercantile Exchange Nepal Limited (MEX) * Multi Commodity Exchange (MCX) * National Commodity and Derivatives Exchange (NCDEX) * National Commodity Exchange Limited (NCEL) * New York Mercantile Exchange (NYMEX) Commodity market, Markets for trading commodities can be very economic efficiency, efficient, particularly if the division into pools matches demand market segmentation, segments. These markets will quickly respond to changes in supply and demand to find an Economic equilibrium, equilibrium price and quantity. In addition, investors can gain passive exposure to the commodity markets through a commodity price index. In order to Diversification (finance), diversify their investments and mitigate the risks associated with inflationary debasement of currencies, pension funds and sovereign wealth funds allocate capital to non-listed assets such as a commodities and commodity-related infrastructure.


Inventory data

The inventory of commodities, with low inventories typically leading to more volatile future prices and increasing the risk of a "stockout" (inventory exhaustion). According to economist theorists, companies receive a convenience yield by holding inventories of certain commodities. Data on inventories of commodities are not available from one common source, although data is available from various sources. Inventory data on 31 commodities was used in a 2006 study on the relationship between inventories and commodity futures risk premiums.


Commodification of labor

In classical political economy and especially in Karl Marx's critique of political economy, a commodity is an object or a good or service ("product" or "activity") produced by labour power, human labour. Objects are external to man. However, some objects attain "use value" to persons in this world, when they are found to be "necessary, useful or pleasant in life". "Use value" makes an object "an object of human wants", or "a means of subsistence in the widest sense". As society developed, people found that they could trade goods and services for other goods and services. At this stage, these goods and services became "commodities". According to Marx, commodities are defined as objects which are offered for sale or are "exchanged in a market". In the marketplace, where commodities are sold, "use value" is not helpful in facilitating the sale of commodities. Accordingly, in addition to having use value, commodities must have an "exchange value"—a value that could be expressed in the market. Prior to Marx, many economists debated as to what elements made up exchange value. Adam Smith maintained that exchange value was made up of economic rent, rent, economic profit, profit, labor economics, labour and the costs of wear and tear on the instruments of husbandry. David Ricardo, a follower of Adam Smith, modified Smith's approach on this point by alleging that labour alone is the content of the exchange value of any good or service. While maintaining that all exchange value in commodities was derived directly from the hands of the people that made the commodity, Ricardo noted that only part of the exchange value of the commodity was paid to the worker who made the commodity. The other part of the value of this particular commodity was labour that was not paid to the worker—unpaid labour. This unpaid labour was retained by the owner of the means of production. In capitalist society, the capitalist owns the means of production and therefore the unpaid labour is retained by the capitalist as rent or as profit. The means of production means the site where the commodity is made, the raw products that are used in the production and the instruments or machines that are used for the production of the commodity. However, not all commodities are reproducible nor were all commodities originally intended to be sold in the market. These priced goods are also treated as commodities, e.g. human labour-power, works of art and natural resources ("earth itself is an instrument of labour"), even though they may not be produced specifically for the market, or be non-reproducible goods. Marx's analysis of the commodity is intended to help solve the problem of what establishes the economic value of goods, using the labour theory of value, labor theory of value. This problem was extensively debated by Adam Smith, David Ricardo and Karl Rodbertus-Jagetzow among others. All three of the above-mentioned economists rejected the theory that labour composed 100% of the exchange value of any commodity. In varying degrees, these economists turned to supply and demand to establish the price of commodities. Marx held that the "price" and the "value" of a commodity were not synonymous. Price of any commodity would vary according to the imbalance of supply to demand at any one period of time. The "value" of the same commodity would be consistent and would reflect the amount of labour value used to produce that commodity. Prior to Marx, economists noted that the problem with using the "quantity of labour" to establish the value of commodities was that the time spent by an unskilled worker would be longer than the time spent on the same commodity by a skilled worker. Thus, under this analysis, the commodity produced by an unskilled worker would be more valuable than the same commodity produced by the skilled worker. Marx pointed out, however, that in society at large, an average amount of time that was necessary to produce the commodity would arise. This average time necessary to produce the commodity Marx called the "socially necessary labour time".Karl Marx, ''Capital: Volume I'', p. 39 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35'', p. 49. Socially necessary labour time was the proper basis on which to base the "exchange value" of a given commodity.


See also

* 2000s commodities boom * Commercial off-the-shelf or "commercially available off-the-shelf" (COTS) * Commodification * Commodity (Marxism) * Commodity currency * Commodity fetishism * Commodity risk, Commodity market risk and values * Commodity money * Commodity price shocks * Commodity price index * List of traded commodities * Sample grade * Standardization * Trade


Notes


External links


Pricing in Electricity Markets: A Mean Reverting Jump Diffusion Model with SeasonalityCollection of current and historical commodities data
from Quandl
United Nations Human Rights CouncilConceptual problems in commodity regulation
{{Authority control Commodities, * Commodities used as an investment, Business terms