Types of Commodities

Investors do not trade in actual products, but rather commodities, through trade certificates and futures contracts. They buy such things as hundreds of thousands of pounds of grain, the never really own the grain itself. Rather, they own a commodity which is categorized through a comparison of price, trading, and research. The key to help you make money in commodities is in selecting the right ones and using a good strategy.

Energy

Especially as of late, energy has been one of the most actively traded commodities on the market. Energies include such products as petroleum, heating oil, crude oil, propane, natural gas, coal, and derivates of these substances.

There is a minimum price change and standard size set by the exchanges instituted on each commodity, referred to as tick. A standard contract size equals the amount of the futures contract. For instance, with crude oil, this amount equals one thousand barrels while in the case of wheat, it equals five thousand bushels.

Grains

Grains refer to agricultural crops. This category of commodities includes wheat, corn, oats, rice, and soybeans. The major exchange for grain commodities is the Chicago Board of Trade. In the case of soybean meal, the price is listed in dollars per ton and the standard contract size equals one hundred tons.

Softs

Softs refer to commodities that are generally plants and food products such as coffee, cocoa, cotton, sugar, and orange juice. Softs are traded on the Coffee, Sugar and Cocoa Exchange, although a more recent one, Frozen Concentrated Orange Juice, is also listed on the New York Cotton Exchanges. It is considered newer because it did not exist until inexpensive refrigeration methods swept across the country after World War II. Rather than trade the fruit, it is the juice which is an investment commodity because over 80% of all oranges grown here are used to produce frozen concentrate.

Meats

This category of commodities encompasses live cattle, pork bellies, hogs, and their derivatives. They are traded on several exchanges, such as the old and venerable Kansas City Board of Trade. Because meats are an interactive investment, savvy investors track the activity on more than one market. For instance, the price of pork bellies relies largely on the price of the grain they are fed.

Financials

Lastly, financials are offered for trade on many of the same exchanges as commodities. Investors purchase futures of financial products based on a central bank’s interest price as well as mortgages, debt and Treasury Bond futures. One of the more popular is an S&P 500 Index futures contract.