Understand how the commodities market works

Have you ever stopped to think about where the oil that fuels your car or the wheat that becomes bread on your table comes from? All of this falls into the category of commodities - those essential raw materials that drive the global economy. But how exactly does the business behind these products work?

The Foundations of Commodity Trading

In practice, commodities are resources and agricultural products traded on a large scale. The difference is that there is no retail trade here - everything happens wholesale, between large producers, industries, and investors. The interesting part is that you don’t necessarily need to receive a ton of oil or a truckload of corn to participate in this market. Many transactions operate through futures contracts, where you commit to buying or selling a specific commodity at an agreed-upon price in advance, with delivery scheduled for a specific date.

How Are Commodities Divided?

There are two main groups in the world of commodities. One of them is formed by hard commodities - those that require intensive exploration and extraction, such as gold, silver, and oil. These are resources provided by nature but need to be mined or refined before use.

On the other side are soft commodities, which mainly come from agriculture and livestock. This includes products like coffee, sugar, corn, wheat, as well as animal derivatives like meat and milk. These goods are renewable with each harvest cycle.

Practical Examples of Commodities

In the energy category, we find crude oil and natural gas - essential for industries and consumers. Mineral raw materials include gold, silver, copper, and aluminum, which supply everything from jewelry to construction industries. Field products encompass sugar, coffee, and corn, with high demand for both consumption and industrial production, including biofuels. Livestock contributes with cattle, milk, and beef, supporting food networks around the world.

Understanding how commodities work is essential for those who want to understand economic cycles and investment opportunities in global markets.