FAQ
What is a commodity?
A raw material standardized enough that one unit trades against another without inspection: a barrel of WTI, a bushel of number 2 corn, an ounce of gold. Standardization is what makes grading, futures, and global pricing possible. Manufactured goods differ by brand and maker, commodities differ only by grade and location.
How do futures contracts work?
You commit today to buy or sell a standardized quantity at a set future month, posting margin, a small good faith deposit, and settling gains and losses in cash daily. Most positions offset before delivery, so traders rarely see a barrel or a bushel. Leverage cuts both ways, which is why margin management is the core discipline.
What does spot price mean?
The cash price for immediate delivery at a specific location, as opposed to futures prices for later months. Physical cargo deals price as spot or as formulas off futures averages. Local spot differs from the exchange benchmark by basis, the freight and quality differential, and the two converge where delivery mechanics force them to.
Why do food prices swing so much?
Supply is annual and weather dependent, demand is steady and inelastic, and storage is costly, so a small crop shortfall moves price violently. Export bans, fertilizer costs, fuel, and freight add layers. Grains, oils, and sugar are the staples where these forces show up in the grocery bill fastest.
Are commodities good inflation hedges?
Partially and unevenly. Energy and industrial metals track inflation mechanically, since they are inputs to it, and gold hedges currency debasement over long horizons while lagging in tight money eras. Broad baskets helped in the 1970s and 2000s and disappointed in the 2010s. Position them as diversification, not insurance with a guaranteed payout.
Who are the biggest producers by commodity?
The US leads crude oil and corn, Saudi Arabia crude exports, China aluminum and steel and rice, Chile copper mine output, Indonesia nickel and tin, DR Congo cobalt, Australia iron ore and wool and lithium, Brazil soybeans and coffee and sugar, Russia and Ukraine wheat and sunflower, Ivory Coast and Ghana cocoa, South Africa platinum and manganese and gold on the continent scale.