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Essential commodity market assets

The commodity market is at the beating heart of the trading world. It ensures that companies all around the world can get the necessary resources they need to function properly. Whether this is by selling these resources directly or transforming them into new products, the role of the commodity market in all of this cannot be understated. You may as well say that all the financial markets we have today developed from the foundations of commodity trading. If we want to discuss the commodity market, we must discuss those resources which are of the highest importance to it. They come in several categories. For one, we have agricultural products (including meat, livestock, dairy etc.). We then have metals, which can be of use for various purposes. Finally, we come to energy products, which, again, have a variety of uses.

commodity market, Essential commodity market assets

Agricultural products in the commodity market

These are the most essential commodity products, as they ensure that populations all around the world are fed. We have specifically included any raw products that are produced in traditional agricultural sectors, in this list.

The first of these could be meat, such important products such as beef, chicken, pork, and a whole range of fish. Various parts of an animal’s meat can have several uses. For example, fat has, at various times, been used for soap and candles.

People can also sell livestock directly, with which they can derive several different products. This could be meat itself, milk, eggs, (dairy products in general), breeding more livestock, and by-products, like wool.

We then have what is probably the largest sector, grains. This includes wheat, rice, and corn. Farmers find these kinds of products useful not only for selling but also for the upkeep of the products they already own (e.g. feeding livestocks).

Oilseeds are also of importance both for their oils and their by-products. This may include cotton, palm oil, and various others.

commodity market, Essential commodity market assets

We then more secondary class products, including all sorts of varieties of fruits and vegetables. We could also include products like coffee, sugar, and cocoa with these.

Finally, we have the non-consumable products that usually arrive from agricultural sectors. This includes wood, rubber, and the wool we mentioned earlier.

Volatility

The agricultural sector, more than any other commodity sector, suffers from volatility. This is because of the effects the environment has on the production of agricultural products. The time of year, the location (type of soil), and the particular weather conditions are all relevant. The seasons mean that the price of products vary considerably depending on whether a product is accessible, and how large the reserves would be. The weather is not always predictable, so some regions and products may suffer more, for reasons out of their control.

Metals in the commodity market

Metals have all sorts of different uses, which vary depending on their specific properties, and their availability.

Base metals

Metals that are more abundant and more likely to be of use for larger constructions. Since they are more available, they are easier to access, and therefore, cheaper. This use could be as, say, a car skeleton, or the frames of a large building. These would be what we call base metals. People in heavy industry are their main buyers.

Copper is one. Its high electrical conductivity means it is highly useful for electronic equipment (they are present in the vast majority of wires). It also has rather high heat conductivity, making it useful for industrial heat exchangers. Steel is another essential metal. In reality, steel is a mixture of iron and carbon. This alloy product finds a lot of use for the types of constructions we talked about earlier (cars and buildings). Aluminium is an essential metal, being both strong and lightweight. These two combined characteristics mean it is highly useful for, say, building a durable computer. There are plenty more of these metals (lead, tin, zinc, etc.), but we cannot discuss them all here.

commodity market, Essential commodity market assets

Precious metals

Due to their relative rarity, precious metals do tend to have a higher asking price. What’s more, many of them have great visual appeal. These two factors mean that using precious metals as, say, jewellery, is quite a popular tradition. This is because they are great status symbols for people to wear. Furthermore, in the past, many of these metals went on to become so commonly used that they became the basis for the first form of currency.

The attractive aspects of these metals do extend beyond their rarity and some do have practical uses, depending on their specific characteristics. Gold, for example, is often a safe-haven asset and would have had uses in jewellery and as a currency. People can also use gold as a fantastic electric conductor, and as a filling for teeth (this is because it is chemically very unreactive and not poisonous). Silver also has similar superficial uses, with its own practical aspects, though not nearly as precious. It can be of use in silverware, as well as making mirrors and has applications in photography. Some more examples of previous metals are palladium, and platinum.

Energy assets in the commodity market

The final groups of assets we can discuss are the energy assets. These are all the assets that are essential to running the modern world as it currently is. Without them, we would not have electricity, automatic vehicles, modern indoor heating, and other countless uses. They are essential to the way of living and economies of all countries today. Unfortunately, many of these resources are also finite, yet we are using them at an extraordinarily fast rate. This is why people are desperately searching for useful energy alternatives we could use for the foreseeable future.

The most important of these resources is crude oil. Crude oil is not much use in its raw form. However, once factories refine it, they get many useful products. Take gasoline, for example. It is essential for almost all automobile transport, similar to diesel. Heating oil is essential for keeping many people’s houses warm. Due to its many uses, crude oil is essential to the economy. In fact, many countries owe almost all their wealth to oil (e.g. UAE).

Another essential energy source is coal. Coal is one of the main sources of power for producing electricity worldwide. It does not have a monopoly, however, as all that is needed for producing electricity is a source of energy. This can be done in numerable ways and is the area of focus for most renewable energy methods.

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