Commodities

Commodities are goods that are more or less uniform in quality and utility regardless of their source. For instance, when shoppers buy an ear of corn or a bag of wheat flour at a supermarket, most don’t pay much attention to where they were grown or milled. Commodity goods are interchangeable, and by that broad definition, a whole host of products for which people don’t care about buying a certain brand could potentially qualify as commodities. Investors tend to take a more specific view, most often referring to a select group of basic goods that are in demand across the globe. Many commodities that investors focus on are raw materials for the manufactured products that consumers or industrial customers end up buying.

Investors break down commodities into two categories: hard and soft. Hard commodities require mining or drilling to find, including metals like gold, copper, and aluminum, and energy products like crude oil, natural gas, and unleaded gasoline. Soft commodities refer to things that are grown or ranched, including corn, wheat, soybeans, and cattle.