Commodity

A commodity is a basic good or raw material that is interchangeable with other goods of the same type. These products are often used as inputs in the production of other goods or services and are usually standardized in quality and form, allowing them to be traded without significant differentiation. Common examples include agricultural products like wheat and coffee, energy resources such as oil and natural gas, and metals like gold, silver, and copper.

The defining characteristic of commodities is their fungibility; unit-to-unit equivalence ensures that commodities can be exchanged on markets at specified prices without regard to origin or branding. This fungibility makes commodities suitable for trading on futures markets, where buyers and sellers agree on prices for future delivery, helping to manage price volatility.

Markets for commodities are typically globally integrated, with prices influenced by supply and demand dynamics, geopolitical factors, weather patterns, and economic conditions. Because commodities are essential resources, their markets are sensitive to disruptions that can influence prices and availability. Governments and organizations may implement policies or strategic reserves to stabilize supply and prices of critical commodities.

The trading of commodities is facilitated through commodity exchanges, such as the New York Mercantile Exchange (NYMEX) and the London Metal Exchange (LME). Investors also participate through commodity funds and derivative financial instruments, which allow speculation or hedging against price fluctuations.

In economics, commodities are viewed as essential, often considered inputs in the production of goods or services that form the backbone of global trade and industry. Their standardized nature and global market presence make commodities critical to understanding resource management, economic stability, and international trade relations.