View source for Commodity

{{Short description|Fungible item produced to satisfy wants or needs}}
{{For|goods and services that are the object of exchange|Commodity (Marxism)}}
{{Other uses|Commodity (disambiguation)}}
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In [[economics]], a '''commodity''' is an economic [[goods|good]], usually a [[resource]], that specifically has full or substantial [[fungibility]]: that is, the [[Market (economics)|market]] treats instances of the good as equivalent or nearly so with no regard to who [[Production (economics)|produced]] them.<ref name="commexamples">{{cite web |url=http://beginnersinvest.about.com/cs/commodities/f/whatcommodities.htm |archive-url=https://archive.today/20040908123119/http://beginnersinvest.about.com/cs/commodities/f/whatcommodities.htm |url-status=dead |archive-date=September 8, 2004 |title=Learn What Commodities Are in These Examples! }}</ref><ref>{{cite dictionary |title=Commodity definition |url=https://www.merriam-webster.com/dictionary/commodity |dictionary=[[Merriam-Webster Dictionary]] |access-date=30 July 2018}}</ref><ref>{{cite news |last1=T. |first1=H. |title=What makes something a commodity? |url=https://www.economist.com/the-economist-explains/2017/01/03/what-makes-something-a-commodity |access-date=22 January 2020 |newspaper=The Economist |date=3 January 2017}}</ref>  

The price of a commodity good is typically determined as a function of its market as a whole: well-established physical commodities have actively traded [[spot market|spot]] and [[derivative (finance)|derivative]] markets. The wide availability of commodities typically leads to smaller [[profit margin]]s and diminishes the importance of factors (such as [[brand|brand name]]) other than price. 

Most commodities are [[raw material]]s, basic resources, [[agriculture|agricultural]], or [[mining]] products, such as [[iron ore]], [[sugar]], or [[grain]]s like [[rice]] and [[wheat]]. Commodities can also be [[mass-produced]] unspecialized products such as [[chemical substance|chemicals]] and [[computer memory]]. Popular commodities include [[Petroleum|crude oil]], [[Maize|corn]], and [[gold]].

Other definitions of '''commodity''' include something useful or valued<ref>''Merriam-Webster Dictionary'', [https://www.merriam-webster.com/dictionary/commodity commodity, def. 2a.] {{Webarchive|url=https://web.archive.org/web/20220420162300/https://www.merriam-webster.com/dictionary/commodity |date=2022-04-20 }}. Retrieved  January 2022.</ref> and an alternative term for an economic good or service available for purchase in the market.<ref>Mas-Colell, Andreu, Michael D. Whinston, and Jeffery  R. Green (1995). ''Microeconomic Theory'', Oxford, p. 17.</ref> In such standard works as [[Alfred Marshall]]'s [[Principles of Economics (Marshall)|''Principles of Economics'']] (1920)<ref>Alfred Marshall (1920). ''Principles of Economics'' [https://eet.pixel-online.org/files/etranslation/original/Marshall,%20Principles%20of%20Economics.pdf Press cntrl-f to search for commodity vis- à-vis goods and services.] {{Webarchive|url=https://web.archive.org/web/20220114181004/https://eet.pixel-online.org/files/etranslation/original/Marshall,%20Principles%20of%20Economics.pdf |date=2022-01-14 }}</ref> and [[Léon Walras]]'s  [[Léon Walras#Éléments d'Économie Politique Pure|''Elements of Pure Economics'']] ([1926] 1954)<ref>Léon Walras ([1926] 1954). ''Elements of Pure Economics''  [http://digamo.free.fr/walras96.pdf Press cntrl-f to search for commodity vis- à-vis goods and services.] {{Webarchive|url=https://web.archive.org/web/20220115062653/http://digamo.free.fr/walras96.pdf |date=2022-01-15 }}</ref> 'commodity' serves as general term for an economic good or service.

==Etymology==
The word ''commodity'' came into use in English in the 15th century, from the French ''[[:wikt:commodité#French|commodité]]'', "amenity, convenience". Going further back, the French word derives from the Latin ''[[:wikt:commoditas#Latin|commoditas]]'', meaning "suitability, convenience, advantage". The Latin word ''[[:wikt:commodus#Latin|commodus]]'' (from which English gets other words including ''commodious'' and ''accommodate'') meant variously "appropriate", "proper measure, time, or condition", and "advantage, benefit".

== Description ==

===Characteristics=== 
In economics, the term ''commodity'' is used specifically for [[economic goods]] that have full or partial but substantial [[fungibility]]; that is, the market treats their instances as equivalent or nearly so with no regard to who produced them.<ref name="commexamples" /> Karl Marx described this property as follows: "From the taste of [[wheat]], it is not possible to tell who produced it, a [[Serfdom in Russia|Russian serf]], a French peasant or an English [[capitalist]]."<ref>[[Karl Marx]], "[[A Contribution to the Critique of Political Economy]]" contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 29'', p. 270.</ref> [[Petroleum]] and [[copper]] are examples of commodity goods:<ref>{{cite book |last=O'Sullivan |first=Arthur |author-link=Arthur O'Sullivan (economist) |author2=Steven M. Sheffrin |title=Economics: Principles in action |publisher=Pearson / Prentice Hall |year=2004 |isbn=0-13-063085-3}}</ref> their supply and demand are a part of one universal market.

Non-commodity items such as [[stereo]] systems have many aspects of [[product differentiation]], such as the [[brand]], the user interface and the perceived quality. The demand for one type of stereo may be much larger than demand for another.

The price of a commodity good is typically determined as a function of its market as a whole. Well-established physical commodities have actively traded [[spot market|spot]] and [[derivative (finance)|derivative]] markets.

=== Six Major Characteristics of Commodities ===
Source:<ref>{{Cite web |title=Beginner's Guide to Commodity Trading {{!}} What Are Commodities? How Does the Commodity Market Work? |url=https://www.tradingkey.com/learn/beginner/commodities/diving-into-commodity-trading-understanding-market-operations |access-date=2025-08-26 |website=tradingkey.com |language=en}}</ref>
# Massive Supply and Demand Scale — The Fundamental Fuel of the Industrial Economy
# Significant Price Volatility: Dynamic Balance Driven by Multiple Factors
# High Storage and Transportation Convenience
# Diverse Categories — The Material Foundation Covering the Entire Industry Chain
# High Degree of Quality Homogeneity
# Prominent Financial Attributes — A Dual Channel Connecting Real Economy and Capital Markets

=== Hard and soft commodities ===
[[File:World Exports Of Cereals By Main Commodities.svg|thumb|World exports of cereals by main commodities]]
[[Soft commodity|Soft commodities]] are goods that are grown, such as [[wheat]], or [[rice]].

Hard commodities are [[mining|mined]]. Examples include [[gold]], [[silver]], [[helium]], [[petroleum|oil]].

Energy commodities include electricity, gas, [[coal]] and oil. Electricity has the particular characteristic that it is usually uneconomical to store, and must therefore be consumed as soon as it is produced.

== Commoditization ==
{{main|Commoditization}}

Commoditization occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the [[intellectual capital]] necessary to acquire or produce it efficiently. As such, goods that formerly carried premium [[Profit margin|margins]] for [[Market (economics)|market]] [[wikt:participation|participants]] have become commodities, such as [[Generic drug|generic pharmaceuticals]] and [[dynamic random-access memory|DRAM chips]]. An article in ''[[The New York Times]]'' cites [[multivitamin]] supplements as an example of commoditization; a 50&nbsp;mg tablet of [[calcium]] is of equal value to a consumer no matter what company produces and markets it, and as such, multivitamins are now sold in bulk and are available at any supermarket with little brand differentiation.<ref name="Times">{{Cite news |author=Natasha Singer |author2=Peter Lattman |title=Workout Supplement Challenged |url=https://www.nytimes.com/2013/03/17/business/a-soldiers-parents-take-aim-at-gnc-and-a-supplement-maker.html?hpw&pagewanted=all |work=The New York Times |date=15 March 2013 |access-date=17 March 2013}}</ref> Following this trend, [[nanomaterials]] are emerging from carrying premium profit margins for market participants to a status of commodification.<ref>C. McGovern, "Commoditization of nanomaterials". ''Nanotechnology Perceptions'' '''6''' (2010) 155–178.</ref>

There is a spectrum of commoditization, rather than a binary distinction of "commodity versus differentiable product". Few products have complete undifferentiability and hence fungibility; even electricity can be differentiated in the market based on its method of generation (e.g., fossil fuel, wind, solar), in markets where [[electricity market#Retail electricity market|energy choice]] lets a buyer opt (and pay more) for renewable methods if desired. Many products' degree of commoditization depends on the buyer's mentality and means. For example, milk, eggs, and notebook paper are not differentiated by many customers; for them, the product is fungible and lowest price is the main decisive factor in the purchasing choice. Other customers take into consideration other factors besides price, such as environmental sustainability and animal welfare. To these customers, distinctions such as "[[Organic food|organic]] versus not" or "[[Free-range eggs|cage free]] versus not" count toward differentiating brands of milk or eggs, and percentage of recycled content or [[Forest Stewardship Council]] [[Certified wood|certification]] count toward differentiating brands of notebook paper.

==Global commodities trading company==
This is a list of companies trading globally in commodities, descending by size as of October 28, 2011.<ref name=reuters>{{cite news |url=https://www.reuters.com/article/us-commodities-houses-idUSTRE79R4S320111028 |title=Corrected: Commodity Traders: The trillion dollar club |work=[[Reuters]] |date=Oct 28, 2011 |access-date=2008-06-12}}</ref>

# [[Vitol]]
# [[Glencore]]
# [[Trafigura]]
# [[Cargill]]
# Salam Investment
# [[Archer Daniels Midland]]
# [[Gunvor (company)]]
# [[Mercuria Energy Group]]
# [[Noble Group]]
# [[Louis Dreyfus Group]]
# [[Bunge Limited]]
# [[Wilmar International]]
# [[Olam International]]

==Commodity trade==
{{Main article|Futures exchange|Commodity market}}
In the original and simplified sense, '''''commodities''''' were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer were considered equivalent. On a commodity exchange, it is the underlying standard stated in the contract that defines the commodity, not any quality inherent in a specific producer's product.

[[Commodities exchange]]s include:<!-- New links in alphabetical order please -->
* Bourse Africa (formerly GBOT)
* [[Bursa Malaysia]] Derivatives (MDEX)
* [[Chicago Board of Trade]] (CBOT)
* [[Chicago Mercantile Exchange]] (CME)
* [[Dalian Commodity Exchange]] (DCE)
* [[Euronext.liffe]] ([[LIFFE]])
* [[Kansas City Board of Trade]] (KCBT)
* [[London Metal Exchange]] (LME)
* [[Marché à Terme International de France]] (MATIF)
* Mercantile Exchange Nepal Limited (MEX)
* [[Multi Commodity Exchange]] (MCX)
* [[National Commodity and Derivatives Exchange]] (NCDEX)
* [[National Commodity Exchange Limited]] (NCEL)
* [[New York Mercantile Exchange]] (NYMEX)
* [[Yiwu International Trade City]](Yiwu Market)
[[Commodity market|Markets for trading commodities]] can be very [[economic efficiency|efficient]], particularly if the division into pools matches demand [[market segmentation|segments]]. These markets will quickly respond to changes in [[supply and demand]] to find an [[Economic equilibrium|equilibrium]] [[price]] and quantity. In addition, investors can gain passive exposure to the commodity markets through a [[commodity price index]].

In order to [[Diversification (finance)|diversify]] their investments and mitigate the risks associated with [[inflation]]ary debasement of currencies, [[pension fund]]s and [[sovereign wealth fund]]s allocate capital to non-listed assets such as a commodities and commodity-related infrastructure.<ref name="turkishweekly">{{Cite news |author=M. Nicolas Firzli & Vincent Bazi 
 |title=Infrastructure Investments in an Age of Austerity : The Pension and Sovereign Funds Perspective
 |url=http://www.turkishweekly.net/op-ed/2852/infrastructure-investments-in-an-age-of-austerity-the-pension-and-sovereign-funds-perspective.html
 |work=Revue Analyse Financière, volume 41
 |date=2011 |access-date=30 July 2011 |location=. |url-status=dead
 |archive-url=https://web.archive.org/web/20110917182931/http://www.turkishweekly.net/op-ed/2852/infrastructure-investments-in-an-age-of-austerity-the-pension-and-sovereign-funds-perspective.html
 |archive-date=17 September 2011 }}</ref>

== Inventory data ==
The [[inventory]] of commodities, with low inventories typically leading to more volatile future prices and increasing the risk of a "[[stockout]]" (inventory exhaustion). According to economist theorists, companies receive a [[convenience yield]] by holding inventories of certain commodities. [[Data]] on inventories of commodities are not available from one common source, although data is available from various sources. Inventory data on 31 commodities was used in a 2006 study on the relationship between inventories and commodity futures risk premiums.<ref>{{Cite SSRN|last=Gorton |first=GB |display-authors=etal |year=2007 |ssrn=996930 |title=The Fundamentals of Commodity Futures Returns}}</ref>

==Commodification of labour==
{{See also|Labour is not a commodity}}

In classical political economy and especially in [[Karl Marx]]'s [[critique of political economy]], a commodity is an object or a good or service ("product" or "activity"<ref>Karl Marx, "Outlines of the Critique of Political Economy" contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 28'', 80.</ref>) produced by [[labour power|human labour]].<ref>Karl Marx, ''[[Capital, Volume I]]'' (International Publishers: New York, 1967) p. 38 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35'' (International Publishers: New York, 1996) p. 48.</ref> Objects are external to man.<ref>Karl Marx, ''[[Capital, Volume I]]'', p. 87 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35'', p. 97.</ref> However, some objects attain "[[use value]]" to persons in this world, when they are found to be "necessary, useful or pleasant in life".<ref>Aristotle, ''Politica'' (Oxford, 1966) p. 1257.</ref> "Use value" makes an object "an object of human wants",<ref>Karl Marx, "Capital in General: The Commodity" contained in the ''Collected works of Karl Marx and Frederick Engels: Volume 29'' (International Publishers: New York, 1987) p. 269.</ref> or "a means of subsistence in the widest sense".<ref>Karl Marx, "Capital in General: The Commodity" contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 29'', p. 269.</ref>

As society developed, people found that they could trade goods and services for other goods and services. At this stage, these [[goods and services]] became "commodities". According to Marx, commodities are defined as objects which are offered for sale or are "exchanged in a market".<ref>Karl Marx, ''Capital: Volume I'' p. 36 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35'', p. 46.</ref> In the marketplace, where commodities are sold, "use value" is not helpful in facilitating the sale of commodities. Accordingly, in addition to having use value, commodities must have an "exchange value"—a value that could be expressed in the market.<ref>Adam Smith, ''Wealth of Nations'' (Pelican Books: London, 1970) p. 131 and David Ricardo, ''Principles of Political Economy and Taxation'' (Pelican Books: 1971, London) p. 55.</ref>

Prior to Marx, many economists debated as to what elements made up exchange value. [[Adam Smith]] maintained that exchange value was made up of [[economic rent|rent]], [[economic profit|profit]], [[labour economics|labour]] and the costs of wear and tear on the instruments of husbandry.<ref>Adam Smith, ''Wealth of Nations'' (Pelican Books: London, 1970) p. 153.</ref> [[David Ricardo]], a follower of Adam Smith, modified Smith's approach on this point by alleging that labour alone is the content of the exchange value of any good or service.<ref>David Ricardo, ''Principles of Political Economy and Taxation'' (Pelican Books: London, 1971) pp. 56–58.</ref> While maintaining that all exchange value in commodities was derived directly from the hands of the people that made the commodity, Ricardo noted that only part of the exchange value of the commodity was paid to the worker who made the commodity. The other part of the value of this particular commodity was labour that was not paid to the worker—unpaid labour. This unpaid labour was retained by the owner of the means of production. In capitalist society, the capitalist owns the means of production and therefore the unpaid labour is retained by the capitalist as rent or as profit. The means of production means the site where the commodity is made, the raw products that are used in the production and the instruments or machines that are used for the production of the commodity.

However, not all commodities are reproducible nor were all commodities originally intended to be sold in the market. These priced goods are also treated as commodities, e.g. human labour-power, works of art and natural resources ("earth itself is an instrument of labour"),<ref>Karl Marx, ''Capital: Volume I'', p. 179 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35'', p. 189.</ref> even though they may not be produced specifically for the market, or be non-reproducible goods.

Marx's analysis of the commodity is intended to help solve the problem of what establishes the [[economic value]] of goods, using the [[labour theory of value]]. This problem was extensively debated by [[Adam Smith]], [[David Ricardo]]<ref>David Ricardo, ''Principles of Political Economy and Taxation'' (Pelican Books, London, 1971) pp. 56–58.</ref> and [[Karl Rodbertus-Jagetzow]] among others.

All three of the above-mentioned economists rejected the theory that labour composed 100% of the exchange value of any commodity. In varying degrees, these economists turned to supply and demand to establish the price of commodities. Marx held that the "price" and the "value" of a commodity were not synonymous. Price of any commodity would vary according to the imbalance of supply to demand at any one period of time. The "value" of the same commodity would be consistent and would reflect the amount of labour value used to produce that commodity.

Prior to Marx, economists noted that the problem with using the "quantity of labour" to establish the value of commodities was that the time spent by an unskilled worker would be longer than the time spent on the same commodity by a skilled worker. Thus, under this analysis, the commodity produced by an unskilled worker would be more valuable than the same commodity produced by the skilled worker. Marx pointed out, however, that in society at large, an average amount of time that was necessary to produce the commodity would arise. This average time necessary to produce the commodity Marx called the "socially necessary labour time".<ref>Karl Marx, ''Capital: Volume I'', p. 39 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35'', p. 49.</ref> Socially necessary labour time was the proper basis on which to base the "exchange value" of a given commodity.

== Commodity super cycle ==
Commodity super cycles are periods of time, around a decade, where commodities as a whole trade at a price that is greater than their long term [[moving average]].<ref>{{Cite web|last=Spilker|first=Gregor|date=March 22, 202|title=Are We Witnessing the Start of A New Commodities Super Cycle?|url=https://www.institutionalinvestor.com/article/b1r0r28fl471c5/are-we-witnessing-the-start-of-a-new-commodities-supercycle|website=institutional investor}}</ref> A super cycle will usually occur when there is large industrial and commercial change in a country or world that requires more resources to support the change. As prices rise, goods and services that rely on commodities rise with them.

=== History of super cycles ===
There have been four super cycles over the last 120 years worldwide.<ref>{{Cite web|last=Büyükşahin,Mo, Zmitrowicz|first=Bahattin,Kun, Konrad|date=January 2016|title=Commodity Price Supercycles: What are they and What lies ahead?|url=https://www.bankofcanada.ca/wp-content/uploads/2016/11/boc-review-autumn16-buyuksahin.pdf |archive-url=https://web.archive.org/web/20170501191732/http://www.bankofcanada.ca/wp-content/uploads/2016/11/boc-review-autumn16-buyuksahin.pdf |archive-date=2017-05-01 |url-status=live|access-date=May 2, 2021|website=Bank Of Canada}}</ref> The first commodity super cycle started in late 1890 and was accelerated on the back of widespread U.S. industrialization and World War 1. In 1917 commodity prices peaked and then entered a downtrend to the 1930s. As war erupted in Europe in the late 1930s and eventually including the U.S., the world saw a new cycle begin. Countries were not just preparing for war but also for the [[aftermath of World War II]] as large parts of Europe and Asia faced heavy rebuilding. This cycle eventually peaked in 1951 and faded away in the early 70s.<ref name=":0">{{Cite web|last=Brown|first=Randy|date=April 13, 2021|title=Are We About To Enter A Commodity Supercycle?|url=https://www.forbes.com/sites/randybrown/2021/04/13/are-we-about-to-enter-a-commodity-supercycle/?sh=333754d82d89|access-date=April 28, 2021|website=Forbes}}</ref> In the 1970s as world economies grew, they needed more materials and energy to support expansion leading to increases in prices across the board. This boom came to an end as foreign investments fled as extractive industries became nationalized.<ref name=":0" /> The most recent of commodity super cycles began in 2000 as China joined the [[World Trade Organization]].<ref name=":0" /> China was also in the beginning of their boom as industry and expansion took off. Workers moved into cities as emerging industries took off and offered a lot of new jobs and opportunities. In 2008 when the [[Great Recession]] hit, it put a halt onto the supercycle as GDP's across the world tanked leaving many economies in recessions.

The next or the fifth super cycle could arrive as the world enters the final phases of the [[COVID-19 pandemic]] and starts to build massive clean energy infrastructure in view of the commodity price increase.<ref>{{Cite web|last=Levick|first=Ewen|date=2021-03-09|title=New commodity supercycle may benefit Mongolia|url=https://www.mongoliaweekly.org/post/new-commodity-supercycle-may-benefit-mongolia|access-date=2021-05-09|website=Mongolia Weekly|language=en}}</ref>

==See also==
{{cols|colwidth=21em}}
* [[2000s commodities boom]]
* [[Commercial off-the-shelf]] or "commercially available off-the-shelf" (COTS)
* [[Commodification]]
* [[Commodity (Marxism)]]
* [[Commodity currency]]
* [[Commodity fetishism]]
* [[Commodity risk|Commodity market risk and values]]
* [[Commodity money]]
* [[Commodity price shocks]]
* [[Commodity price index]]
* [[Heterogeneity in economics]]
* [[List of traded commodities]]
* [[Sample grade]]
* [[Standardization]]
* [[Trade]]
{{colend}}

==Notes==
{{Reflist|30em}}

==External links==
{{Wiktionary}}
{{Commons category|Commodities}}
*[https://ssrn.com/abstract=592262 Pricing in Electricity Markets: A Mean Reverting Jump Diffusion Model with Seasonality]
*[https://web.archive.org/web/20150402130050/https://www.quandl.com/c/markets/commodities Collection of current and historical commodities data] from [[Quandl]]
*[http://www2.ohchr.org/english/issues/food/docs/Briefing_Note_02_September_2010_EN.pdf United Nations Human Rights Council]
*[https://web.archive.org/web/20090510213204/http://blogs.reuters.com/great-debate/2009/05/05/conceptual-problems-in-commodity-regulation/ Conceptual problems in commodity regulation]

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