Understanding commodities

The word “commodity”� is used often in discussions on agriculture, but what does it mean exactly?

We are all familiar with “manufactured goods”. These are articles made from various components, and there are enormous differences between their prices, their quality and their purpose.

Whether you buy a tractor, a television set or a tube of toothpaste, you are buying manufactured goods. Within categories of manufactured goods, you can also choose between “brands” – the products made by specific companies.

For example, Massey Ferguson and Ford are brands of tractors. By contrast, a “commodity” is the raw material used in the manufacture of goods, or in the production of food.

“Soft” commodities are grown, “hard” commodities are mined. With commodities, there are no specific brands.

On the markets of the world, commodities such as crude oil, wheat or copper are treated as more or less the same. In other words, their price varies according to global supply and demand, and not according to who produces them.

Commodity organisations study these prices and advise farmers accordingly, suggesting, for example, how many hectares should be planted for the coming season.