Commodity

Published Jun 25, 2023

Definition of Commodity

A commodity is a raw material or primary agricultural product that can be bought and sold. It is usually a product that is uniform in quality and is interchangeable with another product of the same type. Examples of commodities include oil, gold, wheat, corn, and coffee.

Example

Let’s take the example of wheat. Wheat is a staple food crop that is consumed worldwide. Farmers grow wheat in large quantities, and it is processed into flour, which is used to make various food products such as bread, pasta, and cakes. Because wheat is a commodity, the price of wheat is largely determined by market forces of supply and demand.

If there is an oversupply of wheat, the price is likely to fall, while if there is a shortage of wheat, the price is likely to rise. Similarly, if the demand for wheat increases due to an increase in population or a change in eating habits, the price of wheat is likely to rise.

Why Commodity Matters

Commodities play an important role in the global economy. They are the building blocks of many industries, and their prices can have a significant impact on the cost of goods and services. The prices of commodities are influenced by a variety of factors, including supply and demand, weather conditions, government policies, and geopolitical events. Therefore, it is essential for businesses and investors to stay up to date on the latest trends and news related to commodities to make informed decisions.