Trading commodities has been there since primitive times, in the form of barter system. Today, commodities are traded to earn profit. This OpinionFront post has listed some of the most traded commodities in the world.
The first recorded commodity future trading dates back to 17th century, in Japan. It occurred with rice futures.
Commodities are physical marketable substances that are produced in huge quantities to satisfy human needs and wants. A commodity market is the place where the buying and selling of such products takes place.
It is interesting to note that it is not the actual commodities that are traded in a commodity market. The buyer actually buys contracts of commodities that are representative of the product. For example, a seller might offer a contract, for a particular quality of coffee at a specific rate on a future delivery date. The main intention behind trading commodities is to hedge the fluctuation in the prices of the commodities. The commodities can range from raw materials like sugar, beans, coffee etc. to precious and semi-precious metals like gold, copper, silver, etc. and financial instruments like bonds, shares, and stocks.
Take a look at the most traded commodities in the world.
Crude oil is a relatively new commodity compared to precious metals like gold, silver etc. Naturally occurring, this oil is a composite mixture of various hydrocarbon and undergoes various distillation processes to come to its usable form. Crude oil is also called petroleum and is often referred to as ‘black gold’. Since, it is a non-renewable resource with a finite presence, it is also one of the most expensive and volatile commodities traded.
Where it is traded: New York Mercantile Exchange (NYMEX), IntercontinentalExchange (ICE), Dubai Mercantile Exchange (DME), India’s National Commodity and Derivatives Exchange (NCDEX), Tokyo Commodity Exchange (TOCOM), etc.
According to The Fairtrade Foundation, in the last 40 years, the global consumption of coffee has increased by 100%; it is estimated that by 2019, the consumption will be around 9.09 million tons. So, it is not surprising that coffee is the second most sought-after commodity in the world.
Where it is traded: BM&FBOVESPA, Kansai Commodity Exchange (KEX), Singapore Commodity Exchange (SICOM), New York Mercantile Exchange (NYMEX), NYSE Euronext, etc.
One of the principle sources of energy for our day-to-day activities, natural gas has cemented its position as one of the most traded commodities in the world. It is a hydrocarbon gas mixture consisting of methane and nitrogen, along with varying amounts of carbon dioxide, hydrogen sulfide, and other hydrocarbons. It is also the cleanliest burning fossil fuel and one of the viable fuel options for the future. Across USA, there are about 2.1 million miles of underground gas pipelines which deliver this fuel to around 62 million families.
Where it is traded: New York Mercantile Exchange (NYMEX), IntercontinentalExchange (ICE), Multi Commodity Exchange of India Ltd (MCX), etc.
Gold is one of the highly valuable and sought-after metals. It is a reliable form of investment and has been a symbol of wealth and prosperity since ancient times. In recent years, about 2500 metric tons of gold were mined on an average annually. It is believed that if all the gold that has been mined in the world was put in one place, it would occupy a space of a 60-feet cube. India is the highest consumer of gold followed by China.
Where it is traded: New York Mercantile Exchange (NYMEX), Dubai Gold & Commodities Exchange (DGCX), Tokyo Commodity Exchange (TOCOM), etc.
Brent oil is the second most traded oil after crude oil. Found in North Sea, it is widely used in Europe and Africa. It is used as a benchmark for classifying other oils. Crude oil is classified on the basis of sulfur content. The ones with more than 0.5% sulfur content are sour crude oil. As the sulfur content in brent oil is 0.37%, it is classified as sweet crude oil. Brent oil trading had first started in the International Petroleum Exchange, London, but later shifted to the IntercontinentalExchange (ICE).
Where it is traded: IntercontinentalExchange (ICE), New York Mercantile Exchange (NYMEX), etc.
Silver is another precious metal that has been traded since ancient times. As it is the best electrical and thermal conductor, it is also used in many industrial applications, such are switches, conductors, and fuses. In 1971, silver prices rose significantly after USA decided to move away from the gold standard. That was also the period when silver consolidated its position as a precious metal in the trading market.
Where it is traded: London Bullion Market, COMEX in New York, etc.
Who doesn’t like a bit of sugar? There is no part in the world where sugar is not traded. British colonist often referred to it as ‘white gold’ as profits from sugar trade were very high. Today, the biggest producer of sugar is Brazil.
Where it is traded: New York Board of Trade (NYBOT), Euronext, Tokyo Grain Exchange (TGE), etc.
Often referred to as ‘yellow gold’, corn can be grown in diverse climatic conditions and hence, it is one of the most grown crops in the world. There are two types of corn: sweet corn and field corn. Sweet corn is used for human consumption, while field corn is used for industrial purposes and animal feed. Corn is estimated to have been cultivated since 12,000 years. Today, USA produces around 270 million tons of corn alone annually.
Where it is traded: Chicago Board of Trade (CBOT), Tokyo Grain Exchange (TGE), Brazilian Mercantile and Futures Exchange (BM&F), Kansai Commodities Exchange (KANEX), National Commodity and Derivatives Exchange (NCDEX), Euronext, etc.
Wheat is one of the most important food grains in the world and the third most cultivated crop, after rice and corn. Wheat flour is used in many food items, from breads, cakes to pastas, noodles, and sweets. It is not a surprise that it is one of the most preferred commodities in the world. About two-third of the world’s wheat production is used for human consumption, whereas the rest is used for livestock feed, industrial uses, etc.
Where it is traded: Chicago Board of Trade (CBOT), Kansas Board of Trade (KCBT), Tokyo Grain Exchange (TGE), Kansai Commodities Exchange (KANEX), Euronext, etc.
Cotton is the world’s most used natural fibers. It has been cultivated in India since almost 6000 years. It was of great interest to the British during the 18th century. Indian cotton was later replaced by cheaper cotton from USA with the advent of slave trade in America. From clothes, papers, medicines to fishing nets and cosmetics, cotton has a number of uses and hence it is always in demand.
Where it is traded: New York Mercantile Exchange (NYMEX), IntercontinentalExchange (ICE), Brazilian Mercantile and Futures Exchange (BM&F), Multi Commodity Exchange of India Ltd. (MCX), National Commodity Exchange Ltd. (NCEL), etc.
One should know that to be able to reap profit from commodity trading, one should understand the market basics and the demand and supply position of various commodities.