Editing Commodity market

{{Short description|Physical or virtual transactions of buying and selling involving raw or primary commodities}}
{{Use dmy dates|date=August 2018}}
{{Financial markets}}
[[File:Chicago bot.jpg|thumb|right|250px|[[Chicago Board of Trade]] [[Maize#Commodity|Corn Futures]] market, 1993]]
[[File:A1 Houston Office Oil Traders on Monday.jpg|thumb|right|[[Price of oil#Speculative trading and crude oil futures|Oil traders]], New York City, 2009]]

A '''commodity market''' is a [[Market (economics)|market]] that trades in the [[Primary sector of the economy|primary economic sector]] rather than manufactured products.  The primary sector includes agricultural products, energy products, and metals. Soft commodities may be perishable and harvested, while hard [[commodities]] are usually mined, such as [[gold]] and [[Crude oil|oil]].<ref>{{cite web|url=http://www.investopedia.com/terms/s/softcommodity.asp#axzz2EGf9ZeC2 |title=Soft Commodity Definition |publisher=Investopedia |date=15 February 2009 |access-date=6 December 2012}}</ref> [[Futures contract]]s are the oldest way of investing in commodities.{{Citation needed|date=December 2020|reason=dubious, should clarify the affirmation}} Commodity markets can include physical trading and derivatives trading using [[spot price]]s, [[Forward contract|forwards]], [[futures contract|futures]], and [[option (finance)|options]] on futures.{{clarify|date=December 2020 |reason= "can include" Physical VS Paper}} Farmers have used a simple form of derivative trading in the commodities market for centuries for price risk management.<ref name=NFA2006>
{{cite web
|publisher=National Futures Association
|title=Opportunities and Risk: an Educational Guide to Trading Futures and Options on Futures
|url=http://www.nfa.futures.org/NFA-investor-information/publication-library/opportunity-and-risk-entire.pdf
|location=Chicago, Illinois
|year=2006
|page=6
}}</ref>

A [[Derivative (finance)|financial derivative]] is a financial instrument whose value is derived from a commodity termed an [[Underlying|underlier]].<ref name=washingtonpost21apr2010>
{{cite news
|url=https://www.washingtonpost.com/wp-dyn/content/article/2010/04/20/AR2010042004666.html
|newspaper=Washington Post
|title=A primer on financial derivatives
|date= 21 April 2010
|first=Robert
|last=O'Harrow
}}</ref> Derivatives are either [[Exchange-traded derivative contract|exchange-traded]] or [[Over-the-counter (finance)|over-the-counter]] (OTC). An increasing number of derivatives are traded via [[Clearing house (finance)|clearing houses]] some with [[central counterparty clearing]], which provide clearing and settlement services on a futures exchange, as well as off-exchange in the OTC market.<ref>{{cite web|url=http://chicagofed.org/webpages/publications/understanding_derivatives/index.cfm |title=Understanding Derivatives: Markets and Infrastructure - Federal Reserve Bank of Chicago |work=Chicagofed.org |access-date=23 August 2018}}</ref>

Derivatives such as futures contracts, [[Swap (finance)|Swaps]] (1970s–), and Exchange-traded Commodities (ETC) (2003–) have become the primary trading instruments in commodity markets. Futures are traded on regulated [[commodities exchange]]s. Over-the-counter (OTC) contracts are "privately negotiated bilateral contracts entered into between the contracting parties directly".<ref name=DerivativesCanada>
{{cite web
|url=http://www.expertpanel.ca/eng/reports/final-report/appendix5.html
|year=2007
|title=The Regulation of Derivatives in Canada
|publisher=Expert Panel
}}</ref><ref name=bloomberg18Jul2010>
{{cite news
|url=https://www.bloomberg.com/news/2010-07-19/commodity-manipulation-may-be-easier-to-prove-with-u-s-financial-overhaul.html
|title=Commodity Manipulation May Be Easier to Prove After Overhaul
|publisher=Bloomberg
|first=Asjylyn
|last=Loder
|date=18 July 2010
}}</ref>

[[Exchange-traded fund]]s (ETFs) began to feature commodities in 2003. Gold ETFs are based on "electronic gold" that does not entail the ownership of physical bullion, with its added costs of insurance and storage in repositories such as the [[London bullion market]]. According to the [[World Gold Council]], ETFs allow investors to be exposed to the gold market without the risk of price [[volatility (finance)|volatility]] associated with gold as a physical commodity.<ref name=GoldMutualVSETF>
{{cite news|author=Bytom Lauricella
|url=https://www.wsj.com/articles/SB10001424052748704107204574473662177737546
|title=Gold Mutual Funds Vs. Gold ETFs: It Depends on the Goal
|newspaper=Wall Street Journal
|date=2 November 2009
|access-date=3 October 2011}}</ref><ref name=commodityETF>{{cite web
|url=http://news.morningstar.com/articlenet/article.aspx?id=305219
|title=The Future of Commodity ETFs
|publisher=Morningstar
|date=25 August 2009
|access-date=3 October 2011
|archive-date=8 January 2017
|archive-url=https://web.archive.org/web/20170108235223/http://news.morningstar.com/articlenet/article.aspx?id=305219
|url-status=dead
}}</ref><ref group=notes>This article covers physical product (food, metals, energy) markets but not the ways that services, including those of governments, nor investment, nor debt, can be seen as a commodity. Articles on [[reinsurance market]]s, [[stock market]]s, [[bond market]]s, and [[currency market]]s cover those concerns separately and in more depth.</ref>

{{toclimit|3}}

== History ==
Commodity-based money and commodity markets in a crude early form are believed to have originated in [[Sumer]] between 4500 BC and 4000 BC. Sumerians first used [[clay]] tokens sealed in a clay vessel, then [[Sumer#Mathematics|clay writing tablets]] to represent the amount—for example, the number of goats, to be delivered.<ref name=forbesindia16jan2013>
{{cite web
|title=Origins of Growing Money
|first=Jasodhara
|last=Banerjee
|date=16 January 2013
|url=http://forbesindia.com/printcontent/34515
|publisher=Forbes India Magazine
|location=India
}}</ref><ref>
{{cite SSRN
|title=Risk Transfer Through Commodity Derivatives: A Study of Soyabean Oil
|ssrn=1736406
|first1=Ram Pratap
|last1=Sinha
|first2=Ashis
|last2=Bhuniya
|date =7 January 2011
}}</ref> These promises of time and date of delivery resemble [[futures contract]].

Early civilizations variously used pigs, rare seashells, or other items as [[commodity money]]. Since that time traders have sought ways to simplify and standardize trade contracts.<ref name="books.google.com">{{cite book |last1=James |first1=Tom |title=Commodity Market Trading and Investment: A Practitioners Guide to the Markets (Global Financial Markets) |date=2016 |isbn=978-1137432803 |page=7 |publisher=Springer |url=https://books.google.com/books?id=IsQmDgAAQBAJ&q=At+first+the+precious+metals+were+valued+for+their+beauty+and+intrinsic+worth+and+were+associated+with+royalty&pg=PA7 |access-date=9 March 2020}}</ref><ref>{{Cite book|last=Diamond|first=Jared|title=Guns, Germs and Steel - The Fates of Human Societies|publisher=W. W. Norton & Company|year=2017|isbn=978-0393354324|location=New York and London}}</ref>

[[Gold]] and [[silver]] markets evolved in classical civilizations. At first, the precious metals were valued for their beauty and intrinsic worth and were associated with royalty.<ref name="books.google.com"/> In time, they were used for trading and were exchanged for other goods and commodities, or for payments of labor.<ref>{{cite web| url = http://commodityhq.com/2012/a-brief-2000-year-history-of-silver-prices/| title = The Historical Value of Silver: A 2000-Year Overview}}</ref> Gold, measured out, then became money. Gold's scarcity, its unique density and the way it could be easily melted, shaped, and measured made it a natural trading asset.<ref>{{Cite web |url=http://www.onlygold.com/tutorialpages/historyfs.htm |title=History of gold |access-date=5 November 2013 |archive-url=https://web.archive.org/web/20131105122334/http://www.onlygold.com/tutorialpages/historyfs.htm |archive-date=5 November 2013 |url-status=dead }}</ref>

Beginning in the late 10th century, commodity markets grew as a mechanism for allocating goods, labor, land and capital across Europe. Between the late 11th and the late 13th century, English urbanization, regional specialization, expanded and improved infrastructure, the increased use of coinage and the proliferation of markets and fairs were evidence of commercialization.<ref name=comarhistoryHolland2010>{{cite web
|title=Medieval market institutions: The organisation of commodity markets in Holland, c. 1200 – c. 1450
|first=Jessica Elisabeth Catharina
|last=Dijkman
|date=18 June 2010
|url=http://igitur-archive.library.uu.nl/dissertations/2010-0621-200140/dijkman.pdf
|archive-url=http://arquivo.pt/wayback/20160519232330/http://igitur%2Darchive.library.uu.nl/dissertations/2010%2D0621%2D200140/dijkman.pdf
|url-status=dead
|archive-date=19 May 2016
|pages=1–2
|access-date=20 April 2013
}}</ref> The spread of markets is illustrated by the 1466 installation of reliable scales in the villages of Sloten and Osdorp so villagers no longer had to travel to Haarlem or Amsterdam to weigh their locally produced cheese and butter.<ref name=comarhistoryHolland2010 />

The [[Amsterdam Stock Exchange]], often cited as the first stock exchange, originated as a market for the exchange of commodities. Early trading on the Amsterdam Stock Exchange often involved the use of very sophisticated contracts, including short sales, forward contracts, and options. "Trading took place at the Amsterdam Bourse, an open aired venue, which was created as a commodity exchange in 1530 and rebuilt in 1608. Commodity exchanges themselves were a relatively recent invention, existing in only a handful of cities."<ref name=Stringham>{{cite journal|last1=Stringham|first1=Edward|title=The Extralegal Development of Securities Trading in Seventeenth Century Amsterdam|journal=Quarterly Review of Economics and Finance|date=2003|volume=43|issue=2|page=321|ssrn=1676251|doi=10.1016/S1062-9769(02)00153-9|s2cid=153987773}}</ref>

In 1864, in the United States, wheat, corn, cattle, and pigs were widely traded using standard instruments on the [[Chicago Board of Trade]] (CBOT), the world's oldest futures and options exchange. Other food commodities were added to the [[Commodity Exchange Act]] and traded through CBOT in the 1930s and 1940s, expanding the list from grains to include rice, mill feeds, butter, eggs, Irish potatoes and soybeans.<ref>
{{cite web
|url=https://www.cftc.gov/About/HistoryoftheCFTC/index.htm
|publisher=U.S. Commodity Futures Trading Commission
|title=History of the CFTC: U.S. Futures Trading and Regulation Before the Creation of the CFTC
}}</ref> Successful commodity markets require broad consensus on product variations to make each commodity acceptable for trading, such as the purity of gold in bullion.<ref>{{cite web | url=http://www.goptions.com/commodities-trading-binary-options/ | title=Variations of commodities in trading | publisher=GOptions Trading | access-date=29 March 2016 | archive-date=13 April 2016 | archive-url=https://web.archive.org/web/20160413123112/http://www.goptions.com/commodities-trading-binary-options/ | url-status=dead }}</ref> Classical civilizations built complex global markets trading gold or silver for spices, cloth, wood and weapons, most of which had standards of quality and timeliness.<ref>{{cite book |last1=James |first1=Tom |title=Commodity Market Trading and Investment: A Practitioners Guide to the Markets (Global Financial Markets) |date=2016 |isbn=978-1137432803 |page=8 |publisher=Springer |url=https://books.google.com/books?id=IsQmDgAAQBAJ&q=At+first+the+precious+metals+were+valued+for+their+beauty+and+intrinsic+worth+and+were+associated+with+royalty&pg=PA7 |access-date=9 March 2020}}</ref>

Through the 19th century "the exchanges became effective spokesmen for, and innovators of, improvements in transportation, warehousing, and financing, which paved the way to expanded interstate and international trade."<ref>{{cite book
|title=US Commodity Futures Trading Handbook Volume 1 Strategic Information and Regulations
|isbn=978-1577516095
|url={{google books|id=25kBkIfv2|p=23|plainurl=yes}}
|date=29 May 2016
}}{{Dead link|date=December 2023 |bot=InternetArchiveBot |fix-attempted=yes }}</ref>

Reputation and clearing became central concerns, and states that could handle them most effectively developed powerful financial centers.<ref name="HistoryCFuturesMarkham1987">
{{cite book
|title=The History of Commodity Futures Trading and Its Regulation
|url=https://archive.org/details/historyofcommodi00mark
|url-access=registration
|first=Jerry W.
|last=Markham
|publisher=Praeger
|year=1987
|page=[https://archive.org/details/historyofcommodi00mark/page/305 305]
|isbn=9780275923136
}}</ref>

==Commodity price index==
In 1934, the U.S. [[Bureau of Labor Statistics]] began the computation of a daily [[Commodity price index]] that became available to the public in 1940. By 1952, the Bureau of Labor Statistics issued a Spot Market Price Index that measured the price movements of "22 sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions. As such, it serves as one early indication of impending changes in business activity."<ref name=CRBspotindex2006>{{cite encyclopedia
|encyclopedia=Encyclopedia of Commodity and Financial Prices: Grains and Oilseeds
|publisher=Commodity Research Bureau (CRB)
|year=2006
|url=http://www.crbtrader.com/crbindex/spot_background.asp
|title=CRB® BLS Spot Indices
|access-date=25 April 2013
|archive-url=https://web.archive.org/web/20130119230121/http://www.crbtrader.com/crbindex/spot_background.asp
|archive-date=19 January 2013
|url-status=dead
}}</ref>

==Commodity index fund==
A [[commodity index fund]] is a fund whose assets are invested in financial instruments based on or linked to a commodity index. In just about every case the index is in fact a Commodity Futures Index. The first such index was the Dow Jones Commodity Index, which began in 1933.<ref>{{cite journal |title=The First Commodity Futures Index of 1933 |date=19 September 2019 |ssrn=3451443 |last1=Bhardwaj |first1=Geetesh |last2=Janardanan |first2=Rajkumar |last3=Rouwenhorst |first3=K. Geert |doi=10.2139/ssrn.3451443 |s2cid=229480527 }}</ref>  The first practically investable commodity futures index was the [[Goldman Sachs Commodity Index]], created in 1991,<ref name="bub">"The Food Bubble", Frederick Kaufman, Harper's, 2010 July</ref> and known as the "GSCI". The next was the Dow Jones AIG Commodity Index. It differed from the GSCI primarily in the weights allocated to each commodity. The DJ AIG had mechanisms to periodically limit the weight of any one commodity and to remove commodities whose weights became too small. After [[AIG]]'s financial problems in 2008 the Index rights were sold to [[UBS]] and it is now known as the DJUBS index. Other commodity indices include the Reuters / CRB index (which is the old CRB Index as re-structured in 2005) and the Rogers Index.

==Cash commodity==
Cash commodities or "actuals" refer to the physical goods—e.g., wheat, corn, soybeans, crude oil, gold, silver—that someone is buying/selling/trading as distinguished from derivatives.<ref name=NFA2006 />

==Electronic commodities trading==
In traditional [[Stock exchange#Major stock exchanges|stock market exchanges]] such as the [[New York Stock Exchange]] (NYSE), most trading activity took place in the [[trading floor|trading pits]] in face-to-face interactions between brokers and dealers in [[Open outcry|open outcry trading]].<ref name=highfrequencytrading2011>
{{cite news
|url=http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1211&context=dltr
|title=The rise of computerized high frequency trading: use and controversy
|first=Michael
|last=McGowan
|year=2011
|journal=Duke Law & Technology Review
}}</ref> In 1992 the  [[Financial Information eXchange]] (FIX) protocol was introduced, allowing international real-time exchange of information regarding market transactions. The [[U.S. Securities and Exchange Commission]] ordered U.S. stock markets to convert from the [[imperial units|fractional system]] to a [[Decimal|decimal system]] by April 2001. [[Metrification]], conversion from the [[imperial units|imperial system of measurement]] to the [[metric system|metrical]], increased throughout the 20th century.<ref name=decimal>
{{cite web
|title=Stock Market Goes Decimal: Complicated fractions abandoned in favor of pennies
|first1=David
|last1=Johnson
|url=http://www.infoplease.com/spot/stockdecimal1.html
}}</ref> Eventually FIX-compliant interfaces were adopted globally by commodity exchanges using the FIX Protocol.<ref name=FIXGlobal2011>{{cite web
|first1=Fred
|last1=Malabre
|first2=Don
|last2=Mendelson
|publisher=CME Group
|date=15 December 2011
|title=Commodities Trading with FIX
|url=http://fixglobal.com/home/commodities-trading-with-fix/
|access-date=29 November 2013
|archive-date=3 December 2013
|archive-url=https://web.archive.org/web/20131203025718/http://fixglobal.com/home/commodities-trading-with-fix/
|url-status=dead
}}</ref> In 2001 the [[Chicago Board of Trade]] and the [[Chicago Mercantile Exchange]] (later merged into the CME group, the world's largest futures exchange company)<ref name=decimal /> launched their FIX-compliant interface.

By 2011, the [[alternative trading system]] (ATS) of [[Electronic communication network|electronic trading]] featured computers buying and selling without human dealer intermediation. [[High-frequency trading]] (HFT) algorithmic trading, had almost phased out "dinosaur floor-traders".<ref name=highfrequencytrading2011 /><ref group="notes">In July 2009, when a high-frequency trading platform with proprietary [[algorithmic trading code]] used by [[Goldman Sachs]] to allegedly generate massive profits in the commodity market was stolen by [[Sergey Aleynikov]] there was widespread concern about the unintended economic consequences of HFT.</ref>

===Complexity and interconnectedness of global market===
The robust growth of [[Emerging markets|emerging market economies]] (EMEs, such as Brazil, Russia, India, and China), beginning in the 1990s, "propelled commodity markets into a supercycle". The size and diversity of commodity markets expanded internationally,<ref name=BankofCanada25sept2012>
{{cite web
|url=http://www.bankofcanada.ca/2012/09/speeches/financing-commodities-markets/
|title=Financing Commodities Markets presented to the CFA Society of Calgary
|first=Timothy
|last=Lane (Deputy Governor of the Bank of Canada)
|location=Calgary, Alberta
|date=25 September 2012
}}</ref> and [[pension fund]]s and [[sovereign wealth fund]]s started allocating more capital to commodities, in order to [[Diversification (finance)|diversify]] into an asset class with less exposure to currency depreciation.<ref>{{cite news |first1=M. Nicolas |last1=Firzli |first2=Vincent |last2=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 |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>

In 2012, as emerging-market economies slowed down, commodity prices peaked and started to decline. From 2005 through 2013, energy and metals' [[Real prices and ideal prices|real prices]] remained well above their long-term averages. In 2012, real [[food prices]] were their highest since 1982.<ref name=BankofCanada25sept2012 />

The price of gold bullion fell dramatically on 12 April 2013 and analysts frantically sought explanations. Rumors spread that the [[European Central Bank]] (ECB) would force [[Cyprus]] to sell its gold reserves in response to its [[2012–2013 Cypriot financial crisis|financial crisis]]. Major banks such as [[Goldman Sachs]] began immediately to short gold bullion. Investors scrambled to liquidate their [[exchange-traded fund]]s (ETFs)<ref group=notes>Exchange Traded Funds revolutionized the mutual funds industry when they were introduced. Exchange Traded Commodities, sold first by pioneering investors group Barclays Global Investors (BGI) (now owned by BlackRock)  revolutionized the commodity market. By the end of December 2009 Barclays Global Investors (BGI) assets hit an all-time high of $1&nbsp;trillion ($1,032 billion).</ref> and [[Margin (finance)|margin call selling]] accelerated. George Gero, precious metals commodities expert at the [[Royal Bank of Canada]] (RBC) Wealth Management section reported that he had not seen selling of gold bullion as panicked as this in his forty years in commodity markets.<ref name=Forbes15apr2013>
{{cite news
|url=https://www.forbes.com/sites/afontevecchia/2013/04/15/violent-and-panicky-gold-selling-collapse-bullion-and-commodity-markets
|first=Agustino
|last=Fontevecchia
|magazine=Forbes
|date=15 April 2013
|title=Violent And Panicky Gold Selling Collapse Bullion And Commodity Markets
}}</ref>

The earliest commodity exchange-traded fund (ETFs), such as [[SPDR Gold Shares]] {{NYSE Arca|GLD}} and [[iShares]] Silver Trust {{NYSE Arca|SLV}}, actually owned the physical commodities. Similar to these are {{NYSE Arca|PALL}} ([[palladium]]) and {{NYSE Arca|PPLT}} ([[platinum]]). However, most Exchange Traded Commodities (ETCs) implement a [[futures trading]] strategy. At the time Russian Prime Minister [[Dmitry Medvedev]] warned that Russia could sink into recession. He argued that "We live in a dynamic, fast-developing world. It is so global and so complex that we sometimes cannot keep up with the changes". Analysts have claimed that Russia's economy is overly dependent on commodities.<ref name=FinancialTimes17apr2013>
{{cite news
|title=Russia and less than $100 oil
|date=17 April 2013
|first=Isabel
|last=Gorst
|url=http://blogs.ft.com/beyond-brics/2013/04/17/russia-and-less-than-100-oil/#ixzz2QjfhfUBk
|work=Financial Times Blog
|access-date=17 April 2013
}}</ref>

===Contracts in the commodity market===
A [[Spot contract]] is an agreement where delivery and payment either takes place immediately, or with a short lag. Physical trading normally involves a visual inspection and is carried out in physical [[Market (place)|market]]s such as a [[Farmers' market|farmers market]]. [[Derivatives market]]s, on the other hand, require the existence of agreed standards so that trades can be made without visual inspection.

===Standardization===
{{confusing|section|date=March 2022}}
US [[soybean]] futures do not qualify as "standard grade" if they are "GMO or a mixture of GMO and Non-GMO No. 2 yellow soybeans of Indiana, Ohio and Michigan origin produced in the U.S.A. (Non-screened, stored in silo)". They are of "deliverable grade" if they are "GMO or a mixture of GMO and Non-GMO No. 2 yellow soybeans of Iowa, Illinois and Wisconsin origin produced in the U.S.A. (Non-screened, stored in silo)".  Note the distinction between states, and the need to clearly mention their status as GMO ([[genetically modified organism]]) which makes them unacceptable to most [[organic farming|organic]] food buyers.

Similar specifications apply for cotton, orange juice, cocoa, sugar, wheat, corn, barley, [[pork belly|pork bellies]], milk, feed stuffs, fruits, vegetables, other grains, other beans, hay, other livestock, meats, poultry, eggs, or any other commodity which is so traded.

Standardization has also occurred technologically, as the use of the FIX Protocol by commodities exchanges has allowed trade messages to be sent, received and processed in the same format as stocks or equities. This process began in 2001 when the Chicago Mercantile Exchange launched a FIX-compliant interface that was adopted by commodity exchanges around the world.<ref name="FIXGlobal2011"/>

==Derivatives==
[[Derivative (finance)|Derivatives]] evolved from simple commodity future contracts into a diverse group of financial instruments that apply to every kind of asset, including mortgages, insurance and many more. Futures contracts, [[Swap (finance)|Swaps]] (1970s–), Exchange-traded Commodities (ETC) (2003–), forward contracts, etc. are examples. They can be traded through formal exchanges or through Over-the-counter (OTC). Commodity market derivatives unlike credit default derivatives, for example, are secured by the physical assets or commodities.<ref name=washingtonpost21apr2010 />

===Forward contracts===
A [[forward contract]] is an agreement between two parties to exchange at a fixed future date a given quantity of a commodity for a specific price defined when the contract is finalized. The fixed price is also called [[forward price]]. Such forward contracts began as a way of reducing pricing risk in food and agricultural product markets. By agreeing in advance on a price for a future delivery, farmers were able protect their output against a possible fall of market prices and in contrast buyers were able to protect themselves against a possible rise of market prices.

Forward contracts, for example, were used for rice in seventeenth century Japan.

===Futures contract===
[[Futures contract|Futures]] contracts are standardized forward contracts that are transacted through an exchange. In futures contracts the buyer and the seller stipulate product, grade, quantity and location and leaving price as the only variable.<ref>Garner, Carley. ''A Trader's First Book on Commodities''. (New Jersey: FT Press, 2010): pg 19.</ref>

Agricultural futures contracts are the oldest, in use in the United States for more than 170 years.<ref>[[Futures Trading Act of 1921]], Declared unconstitutional in [[Hill v. Wallace]] 259 U.S. 44 (1922), the [[Grain Futures Act]] of 1922 and ''[[Board of Trade of City of Chicago v. Olsen]]'' 262 U.S. 1 (1923).</ref> Modern futures agreements, began in Chicago in the 1840s, with the appearance of [[grain elevators]].<ref>Cronon, William. ''Pricing the Future: Grain''. Nature's Metropolis: Chicago and the Great West. University of Chicago, 1991. pp.109-133</ref> Chicago, centrally located, emerged as the hub between Midwestern farmers and east coast consumer population centers.

===Call options ===
In a [[call option]] [[counterparty|counterparties]] enter into a financial contract option where the buyer purchases the right but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the [[strike price]]). The seller (or "writer") is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right.<ref>{{cite book
  | last1 = O'Sullivan
  | first1 = Arthur
  | author-link = Arthur O'Sullivan (economist)
  | first2 = Steven M. |last2 = Sheffrin
  | author-link2 = Steven M. Sheffrin
  | title = Economics: Principles in Action
  | url = https://archive.org/details/economicsprincip00osul
  | url-access = limited
  | publisher = Pearson Prentice Hall
  | year = 2003
  | location = Upper Saddle River, NJ
  | page = [https://archive.org/details/economicsprincip00osul/page/n304 288]
  | isbn = 0-13-063085-3}}</ref>

===Swaps===
A [[Swap (finance)|swap]] is a derivative in which counterparties exchange the cash flows of one party's financial instrument for those of the other party's financial instrument. They were introduced in the 1970s.<ref name=GlobalFinance2003>{{cite book
|title=Governing Global Finance: Financial derivatives, liberal states, and transformative capacity
|author=William D. Coleman
|series=GHC Working Paper 01/2
|year=2003
|url=http://www.healthagingandsociety.mcmaster.ca/institute-on-globalization-and-the-human-condition/documents/IGHC-WPS_01-2_Coleman.pdf
|access-date=15 April 2013
|archive-url=https://web.archive.org/web/20140209103857/http://www.healthagingandsociety.mcmaster.ca/institute-on-globalization-and-the-human-condition/documents/IGHC-WPS_01-2_Coleman.pdf
|archive-date=9 February 2014
|url-status=dead
}}</ref><ref name=JournalFuturesMarkets>
{{cite journal
|title=Futures Markets: Their Purpose, Their History, Their Growth, Their Successes and Failures
|author=Dennis W. Carlton
|journal=Journal of Futures Markets
|year=1984
|volume=4
|number=3
|pages=237–71
|doi=10.1002/fut.3990040302
|id={{ProQuest|228205962}}
}}</ref>

===Exchange-traded commodities (ETCs)===
{{main|Exchange-traded product}}
Exchange-traded commodity is a term used for commodity ETFs (which are funds) or commodity [[exchange-traded note]]s (which are notes). These track the performance of an underlying commodity index including total return indices based on a single commodity. They are similar to ETFs and traded and settled exactly like stock funds. ETCs have [[market maker]] support with guaranteed liquidity, enabling investors to easily invest in commodities.

They were introduced in 2003.

At first, only professional institutional investors had access, but online exchanges opened some ETC markets to almost anyone. ETCs were introduced partly in response to the tight supply of commodities in 2000, combined with record low inventories and increasing demand from emerging markets such as China and India.<ref name=ETC>{{cite journal
|title=Exchange Traded Commodities Led by Gold, ETCs Opened the World of Commodities to Investors
|url=http://www.lbma.org.uk/assets/alch48_etc.pdf |archive-url=https://web.archive.org/web/20101126100012/http://lbma.org.uk/assets/alch48_etc.pdf |archive-date=2010-11-26 |url-status=live
|publisher=The London Bullion Market Association
|first=Nik
|last=Bienkowski
|journal=Alchemist
|issue=48
}}</ref>

Prior to the introduction of ETCs, by the 1990s ETFs pioneered by [[Barclays Global Investors]] (BGI) revolutionized the mutual funds industry.<ref name=ETC /> By the end of December 2009 BGI assets hit an all-time high of $1 trillion.<ref>
{{cite web
|url=http://www.opalesque.com/56714/blackrock/Assets_Global_ETF_assets715.html
|title=Black Rock's global ETF's hit an all time high of $1tln
|author=Opalesque
}}</ref>

Gold was the first commodity to be securitised through an ETF in the early 1990s, but it was not available for trade until 2003.<ref name=ETC /> The idea of a Gold ETF was first officially conceptualised by [[Benchmark Asset Management Company Private Ltd]] in India, when they filed a proposal with the [[Securities and Exchange Board of India]] in May 2002.<ref>{{cite web |url=http://www.etfglobalinvestor.net/gold-etf.php |title=Benchmark Asset Management Company conceptualises Gold ETF |publisher=Etfglobalinvestor.net |access-date=3 October 2011 |archive-url=https://web.archive.org/web/20111009035807/http://www.etfglobalinvestor.net/gold-etf.php |archive-date=9 October 2011 |url-status=dead }}</ref> The first gold exchange-traded fund was [[Gold Bullion Securities]] launched on the ASX in 2003, and the first [[silver exchange-traded fund]] was iShares Silver Trust launched on the NYSE in 2006. As of November 2010 a commodity ETF, namely [[SPDR Gold Shares]], was the second-largest ETF by market capitalization.<ref name="etfdb1">{{cite web|url=http://etfdb.com/compare/market-cap/|title=Largest ETFs: Top 25 ETFs By Market Cap|publisher=ETFdb|access-date=3 November 2010}}</ref>

Generally, commodity ETFs are index funds tracking non-security [[index (economics)|indices]]. Because they do not invest in securities, commodity ETFs are not regulated as investment companies under the [[Investment Company Act of 1940]] in the United States, although their public offering is subject to SEC review and they need an SEC [[no-action letter]] under the [[Securities Exchange Act of 1934]]. They may, however, be subject to regulation by the [[Commodity Futures Trading Commission]].<ref>Michael Sackheim, Michael Schmidtberger & James Munsell, DB Commodity Index Tracking Fund: An Innovative Exchange-Traded Fund, ''Futures Industry'' (May/June 2006).</ref><ref>{{cite web |last=Koyfman |first=Yevgeniy |url=http://www.indexuniverse.com/sections/newsinfocus/6362-nogaz.html |title=No Gas: Barclays Halts Issuance of Natural Gas ETN |publisher=Index universe.com |date=21 August 2009 |access-date=3 October 2011 |archive-date=26 August 2009 |archive-url=https://web.archive.org/web/20090826171306/http://www.indexuniverse.com/sections/newsinfocus/6362-nogaz.html |url-status=dead }}</ref>

The earliest commodity ETFs, such as SPDR Gold Shares {{NYSE Arca|GLD}} and [[iShares]] Silver Trust {{NYSE Arca|SLV}}, actually owned the physical commodity (e.g., gold and silver bars). Similar to these are {{NYSE Arca|PALL}} (palladium) and {{NYSE Arca|PPLT}} (platinum). However, most ETCs implement a futures trading strategy, which may produce quite different results from owning the commodity.

Commodity ETFs trade provide exposure to an increasing range of commodities and commodity indices, including energy, metals, [[Soft commodity|softs]] and agriculture. Many commodity funds, such as oil roll so-called front-month futures contracts from month to month. This provides exposure to the commodity, but subjects the investor to risks involved in different prices along the ''term structure'', such as a high cost to roll.<ref name=GoldMutualVSETF /><ref name=commodityETF />

ETCs in China and India gained in importance due to those countries' emergence as commodities consumers and producers. China accounted for more than 60% of exchange-traded commodities in 2009, up from 40% the previous year. The global volume of ETCs increased by a 20% in 2010, and 50% since 2008, to around 2.5 billion million contracts.{{<ref>{{Cite journal|url=https://hbr.org/2007/12/china-india-the-power-of-two|title = China + India: The Power of Two|journal = Harvard Business Review|date = December 2007|last1 = Khanna|first1 = Tarun}}</ref>}}

=== Over-the-counter (OTC) commodities derivatives ===
[[Over-the-counter (finance)|Over-the-counter]] (OTC) commodities derivatives trading originally involved two parties, without an [[exchange (organized market)|exchange]].  Exchange trading offers greater transparency and regulatory protections. In an OTC trade, the price is not generally made public. OTC commodities derivatives are higher risk but may also lead to higher profits.<ref>Jon Gregory. Counterparty credit risk. {{ISBN|978-0-470-68576-1}}. p. 7.</ref>

Between 2007 and 2010, global physical exports of commodities fell by 2%, while the outstanding value of OTC commodities derivatives declined by two-thirds as investors reduced risk following a five-fold increase in the previous three years.

Money under management more than doubled between 2008 and 2010 to nearly $380 billion. Inflows into the sector totaled over $60 billion in 2010, the second-highest year on record, down from $72 billion the previous year. The bulk of funds went into precious metals and energy products. The growth in prices of many commodities in 2010 contributed to the increase in the value of commodities funds under management.<ref>[http://www.thecityuk.com/assets/Uploads/Commodities-Trading-2011.pdf Commodities Trading report] ([https://web.archive.org/web/20151107060517/http://www.thecityuk.com/assets/Uploads/Commodities-Trading-2011.pdf archive])</ref>

==Commodities exchange==
{{main|Commodities exchange}}
A commodities exchange is an exchange where various commodities and derivatives are traded. Most commodity markets across the world trade in agricultural products and other raw materials (like wheat, barley, sugar, maize, cotton, [[Cocoa bean|coco]]a, coffee, milk products, pork bellies, oil, metals, etc.) and contracts based on them. These contracts can include spot prices, forwards, futures and options on futures. Other sophisticated products may include interest rates, environmental instruments, swaps, or freight contracts.<ref name=NFA2006 />

{| class="wikitable sortable" style="margin-left:auto;margin-right:auto"
|- style="background:#ececec;"
|+Largest commodities exchanges
! Exchange !! Country !! Volume per month $M
|-
|[[CME Group]]||USA||$268,000,000<ref name=CMEG2012>{{cite web
|url=http://www.cmegroup.com/wrappedpages/web_monthly_report/Web_Volume_Report_CMEG.pdf
|title=Web Volume Report CMEG
|access-date=2 July 2009
|archive-url=https://web.archive.org/web/20091122071755/http://www.cmegroup.com/wrappedpages/web_monthly_report/Web_Volume_Report_CMEG.pdf
|archive-date=22 November 2009
|url-status=dead
}}</ref>
|-
|[[Tokyo Commodity Exchange]]||Japan|| -
|-
|[[Euronext]]||France, Belgium, Netherlands, Portugal, UK||-
|-
|[[Dalian Commodity Exchange]]||China||-
|-
|[[Multi Commodity Exchange]]||India||-
|-
|[[Intercontinental Exchange]]||USA, Canada, China, UK||-
|-
|Africa Mercantile Exchange||Kenya, Africa||-
|-
|Uzbek Commodity Exchange||Tashkent, Uzbekistan||-
|}

{{Columns-list|colwidth=22em|
* [[Abuja Securities and Commodities Exchange]]
* Africa Mercantile Exchange
* Bhatinda Om & Oil Exchange Bathinda
* [[Brazilian Mercantile and Futures Exchange]]
* [[Chicago Board of Trade]]
* [[Chicago Mercantile Exchange]]
* [[Commodity Exchange Bratislava, JSC]]
* [[Dalian Commodity Exchange]]
* [[Dubai Mercantile Exchange]]
* [[Dubai Gold & Commodities Exchange]]
* [[Euronext.liffe]]
* [[Ethiopia Commodity Exchange]]
* [[Hong Kong Mercantile Exchange]]
* Indian Commodity Exchange
* [[Intercontinental Exchange]]
* [[Iranian Oil Bourse]]
* [[Kansas City Board of Trade]]
* [[London Metal Exchange]]
* [[Minneapolis Grain Exchange]]
* [[Multi Commodity Exchange]]
* [[National Commodity and Derivatives Exchange]]
* National Multi-Commodity Exchange of India Ltd
* National Food Exchange
* [[National Spot Exchange]]
* [[New York Mercantile Exchange]]
* Rochel International
* [[Rosario Board of Trade]]
* [[Sioux City Grain Exchange]]
* [[Tokyo Commodity Exchange]]
* [[Winnipeg Commodity Exchange]]
}}

== Traded commodity classes ==
{{Main|List of traded commodities}}

{| class="sortable wikitable"
|-  style="background:#ececec; vertical-align:top;"
|+ Top traded commodities
! Rank !! Commodity !! Value in US$ ('000)!! Date of <br/> information
|-
| align=center|  1 || Mineral fuels, oils, distillation products, etc. || align=right| $2,183,079,941|| align=center| 2012
|-
| align=center|  2 || Electrical, electronic equipment || align=right| $1,833,534,414|| align=center| 2012
|-
| align=center|  3 || Machinery, nuclear reactors, boilers, etc. || align=right| $1,763,371,813|| align=center| 2012
|-
| align=center|  4 || Vehicles other than railway, tramway || align=right| $1,076,830,856|| align=center| 2012
|-
| align=center|  5 || Plastics and articles thereof || align=right| $470,226,676|| align=center| 2012
|-
| align=center|  6 || Optical, photo, technical, medical, etc. apparatus || align=right| $465,101,524|| align=center| 2012
|-
| align=center|  7 || Pharmaceutical products || align=right| $443,596,577|| align=center| 2012
|-
| align=center|  8 || Iron and steel || align=right| $379,113,147|| align=center| 2012
|-
| align=center|  9 || Organic chemicals || align=right| $377,462,088|| align=center| 2012
|-
| align=center| 10 || Pearls, precious stones, metals, coins, etc. || align=right| $348,155,369|| align=center| 2012
|}
Source: [[International Trade Centre]]<ref>{{cite web|url=http://www.trademap.org/open_access/Index.aspx?proceed=true&&tradetype=E&outputoption=byproduct&productclusterlevel=HS2 |title=Trade statistics for international business development |publisher=Trade Map |date=20 September 2013 |access-date=26 September 2013}}</ref>

===Energy===
Energy commodities include [[crude oil]] particularly [[West Texas Intermediate]] (WTI) crude oil and [[Brent Crude|Brent crude oil]], [[natural gas]], [[heating oil]], [[ethanol]] and [[purified terephthalic acid]]. [[fuel hedging|Hedging]] is a common practice for these commodities.

====Crude oil and natural gas====
{{See also|Chronology of world oil market events}}

For many years, [[West Texas Intermediate]] (WTI) crude oil, a [[Light crude oil|light, sweet crude oil]], was the world's most-traded commodity. WTI is a grade used as a [[benchmark (crude oil)|benchmark in oil pricing]]. It is the [[underlying]] [[commodity]] of Chicago Mercantile Exchange's oil futures contracts. WTI is often referenced in news reports on oil prices, alongside [[Brent Crude]]. WTI is lighter and sweeter than Brent and considerably lighter and sweeter than Dubai or Oman.<ref>[[Marius Vassiliou]] (2009). Historical Dictionary of the Petroleum Industry. Lanham, MD: Scarecrow Press. {{ISBN|0-8108-5993-9}}.</ref>

From April through October 2012, Brent futures contracts exceeded those for WTI, the longest streak since at least 1995.<ref name=BrentWTI2012>
{{cite news
|url=https://www.bloomberg.com/news/2012-11-26/brent-poised-to-oust-wti-as-most-traded-oil-futures.html
|publisher=Bloomberg
|title=Brent Poised to Depose WTI as Most-Traded Oil Futures
|first=Grant
|last=Smith
|date=26 November 2012
}}</ref>

Crude oil can be light or [[Heavy crude oil|heavy]]. Oil was the first form of energy to be widely traded. Some commodity market speculation is directly related to the stability of certain states, e.g., [[Iraq]], [[Bahrain]], [[Iran]], [[Venezuela]] and many others. Most commodities markets are not so tied to the politics of volatile regions.

Oil and gasoline are traded in units of 1,000 barrels (42,000 US gallons). WTI crude oil is traded through [[NYMEX]] under [[Ticker symbol|trading symbol]] CL and through [[Intercontinental Exchange]] (ICE) under trading symbol WBS. Brent crude oil is traded in through Intercontinental Exchange under trading symbol BRN and on the [[Chicago Mercantile Exchange|CME]] under trading symbol BZ. [[Gulf Coast Gasoline]] is traded through NYMEX  with the trading symbol of LR. [[Gasoline]] (reformulated gasoline blendstock for oxygen blending or RBOB) is traded through NYMEX via trading symbol RB. [[Propane]] is traded through NYMEX, a subsidiary of Intercontinental Exchange since early 2013, via trading symbol PN.

Natural gas is traded through NYMEX in units of 10,000 million BTU with the trading symbol of NG. [[Heating oil]] is traded through NYMEX under trading symbol HO.

====Others====
[[Purified terephthalic acid]] (PTA) is traded through ZCE in units of 5 tons with the trading symbol of TA. [[Ethanol]] is traded at [[Chicago Board of Trade|CBOT]] in units of 29,000 U.S. gal under trading symbols AC (Open Auction) and ZE (Electronic).

===Metals===
====Precious metals====
[[Precious metal]]s currently traded on the commodity market include [[gold]], [[platinum]], [[palladium]] and [[silver]] which are sold by the [[troy ounce]]. One of the main exchanges for these precious metals is [[New York Mercantile Exchange|COMEX]].

According to the [[World Gold Council]], investments in gold are the primary driver of industry growth. Gold prices are highly volatile, driven by large flows of speculative money.<ref name=NYT13Apr2012>
{{cite news
|first=Nathanial
|last=Popper
|date=13 April 2012
|url=https://www.nytimes.com/2012/04/14/business/turning-diamonds-into-a-must-have-commodity.html?pagewanted=all
|title=Diamonds as a Commodity
|work=The New York Times
}}</ref>

====Industrial metals====
Industrial metals are sold by the [[metric ton]] through the [[London Metal Exchange]] and [[New York Mercantile Exchange]]. The London Metal Exchange trades include [[copper]], [[aluminium]], [[lead]], [[tin]], [[aluminium alloy]], [[nickel]], [[cobalt]] and [[molybdenum]]. In 2007, [[steel]] began trading on the London Metal Exchange.

Iron ore has been the latest addition to industrial metal derivatives. Deutsche Bank first began offering iron ore swaps in 2008, other banks quickly followed. Since then the size of the market has more than doubled each year between 2008 and 2012.<ref>{{cite web|url=http://www.internationalresourcejournal.com/features/january13_features/the_importance_of_iron_ore_derivatives.html|title=The Importance of Iron Ore Derivatives - The International Resource Journal|website=www.internationalresourcejournal.com|access-date=6 September 2016|archive-url=https://web.archive.org/web/20160915161411/http://www.internationalresourcejournal.com/features/january13_features/the_importance_of_iron_ore_derivatives.html|archive-date=15 September 2016|url-status=dead}}</ref>

===Agriculture===
{{See also|Hedge (finance)#Agricultural commodity price hedging}}
Agricultural commodities include grains, food and fiber as well as livestock and meat, various regulatory bodies define agricultural products.<ref>''See'' the [[Futures Trading Act of 1921]], Declared unconstitutional in [[Hill v. Wallace]] 259 U.S. 44 (1922), the [[Grain Futures Act]] of 1922 and [[Board of Trade of City of Chicago v. Olsen]] 262 US 1 (1923).</ref>

In 1900, corn acreage was double that of wheat in the United States. But from the 1930s through the 1970s soybean acreage surpassed corn. Early in the 1970s grain and soybean prices, which had been relatively stable, "soared to levels that were unimaginable at the time". There were a number of factors affecting prices including the "surge in crude oil prices caused by the Arab Oil Embargo in October 1973 (U.S. inflation reached 11% in 1975)".<ref name=CRB>{{cite web
|title=Encyclopedia of Commodity and Financial Prices: Grains and Oilseeds
|url=http://www.crbtrader.com/pubs/enc/grains.pdf
|publisher=Commodity Research Bureau (CRB)
|pages=172–187
|access-date=25 April 2013
|archive-url=https://web.archive.org/web/20120617101346/http://www.crbtrader.com/pubs/enc/grains.pdf
|archive-date=17 June 2012
|url-status=dead
}}</ref>

On 21 July 2010, [[United States Congress]] passed the [[Dodd–Frank Wall Street Reform and Consumer Protection Act]] with changes to the definition of agricultural commodity. The operational definition used by Dodd-Frank includes "[a]ll other commodities that are, or once were, or are derived from, living organisms, including plant, animal and aquatic life, which are generally fungible, within their respective classes, and are used primarily for human food, shelter, animal feed, or natural fiber". Three other categories were explained and listed.<ref name=DoddFrankdefinition2010>
{{cite web
|url=http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/acd_factsheet_final.pdf |archive-url=https://web.archive.org/web/20110813042609/http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/acd_factsheet_final.pdf |archive-date=2011-08-13 |url-status=live
|title=Final Rule Regarding the Definition of Agricultural Commodity
|publisher=Commodity Futures Trading Commission Office of Public Affairs
|date=21 July 2010
}}</ref>

In February 2013, [[Cornell Law School]] included lumber, soybeans, oilseeds, livestock (live cattle and hogs), dairy products. Agricultural commodities can include lumber (timber and forests), grains excluding stored grain (wheat, oats, barley, rye, grain sorghum, cotton, flax, forage, tame hay, native grass), vegetables (potatoes, tomatoes, sweet corn, dry beans, dry peas, freezing and canning peas), fruit (citrus such as oranges, apples, grapes) corn, tobacco, rice, peanuts, sugar beets, sugar cane, sunflowers, raisins, nursery crops, nuts, soybean complex, aquacultural fish farm species such as finfish, mollusk, crustacean, aquatic invertebrate, amphibian, reptile, or plant life cultivated in aquatic plant farms.<ref name=cornell>
{{cite web
|title=Definition of Agricultural Commodities
|url=https://www.law.cornell.edu/uscode/text/7/1518
|series=Law at Cornell
|publisher=[[Cornell University]]
|date=February 2013
}}</ref><ref name=reuters15april2013>
{{cite news
|title=Gold set for worst two-day loss since 1983
|first=Veronica
|last=Brown
|url=https://www.reuters.com/article/us-markets-commodities-idUSBRE93E0LK20130415?feedType=RSS&feedName=topNews
|work=Reuters
|date=15 April 2013
}}</ref>

===Diamonds===
As of 2012, diamond was not traded as a commodity. Institutional investors were repelled by campaign against "[[blood diamonds]]", the monopoly structure of the diamond market and the lack of uniform standards for diamond pricing. In 2012 the SEC reviewed a proposal to create the "first diamond-backed exchange-traded fund" that would trade online in units of one-carat diamonds with a storage vault and delivery point in Antwerp, home of the [[World Federation of Diamond Bourses|Antwerp Diamond Bourse]]. The exchange fund was backed by a company based in [[New York City]] called [[IndexIQ]]. IndexIQ had already introduced 14 exchange-traded funds since 2008.<ref name=NYT13Apr2012 /><ref>{{cite web
|date=5 February 2013
|title=IQ Physical Diamond Trust
|url=http://sec.edgar-online.com/iq-physical-diamond-trust/s-1a-securities-registration-statement/2013/02/05/section25.aspx
|access-date=15 April 2013
|archive-date=25 December 2016
|archive-url=https://web.archive.org/web/20161225124542/http://sec.edgar-online.com/iq-physical-diamond-trust/s-1a-securities-registration-statement/2013/02/05/section25.aspx
|url-status=dead
}}</ref><ref group=notes>IndexIQ registered Adam S. Patti as Chief Executive Officer (CEO) and David Fogel as Chief Financial Officer and Executive Vice President in the City of Rye Brook, New York, on 31 January 2013 as representatives of IndexIQ Advisors LLC sponsoring the IQ Physical Diamond Trust.</ref>

According to [[Citigroup]] analysts, the annual production of polished diamonds is about $18 billion. Like gold, diamonds are easily authenticated and durable. Diamond prices have been more stable than the metals, as the global diamond monopoly [[De Beers]] once held almost 90% (by 2013 reduced to 40%) of the new diamond market.<ref name=NYT13Apr2012 />

===Other commodity markets===
Rubber trades on the [[Singapore Commodity Exchange]] in units of 1&nbsp;kg priced in U.S. cents. [[Palm oil]] is traded on the [[Malaysian Ringgit]] (RM), [[Bursa Malaysia]] in units of 1&nbsp;kg priced in U.S. cents. Wool is traded on the [[AUD]] in units of 1&nbsp;kg. Polypropylene and Linear Low Density Polyethylene (LL) did trade on the London Metal Exchange in units of 1,000&nbsp;kg priced in USD but was dropped in 2011.

==Impact on inflation==
[[Fossil fuel#Inflation effects|Fossil fuels]] and other commodities have been major drivers of inflationary periods, including the [[2021-2022 inflation spike]] exacerbated by the [[Economic impact of the Russian invasion of Ukraine|Russian Invasion of Ukraine]].<ref name=":023">{{Cite web |last=Leber |first=Rebecca |date=2022-08-12 |title=Fight climate change. End fossilflation. Here's how. |url=https://www.vox.com/science-and-health/2022/8/12/23290488/fight-climate-change-end-fossil-fuel-inflation |access-date=2024-08-18 |website=Vox |language=en-US}}</ref><ref name=":1">{{Cite web |last=Horowitz |first=Julia |date=2022-12-13 |title=Analysis: Inflation is finally falling. But the days when prices rose just 2% may never return {{!}} CNN Business |url=https://www.cnn.com/2022/12/13/economy/inflation-2-demographics-climate-deglobalization/index.html |access-date=2024-08-18 |website=CNN |language=en}}</ref> [[Gernot Wagner]] argues that commodites are undesirable energy sources because of inflationary periods that come with commodity prices.<ref name=":023"/><ref name=":14">{{Cite web |last=Wagner |first=Gernot |date=February 23, 2024 |title=The Ukraine War Blew Up the World's Energy Economy |url=https://heatmap.news/economy/ukraine-war-global-energy |access-date=2024-08-18 |website=heatmap.news |language=en |quote=Throughout the most recent U.S. spike in inflation in 2022, the energy category alone was responsible for around half of total inflation. And that’s just counting the direct effects. Indirectly, a good portion of the food price increases ever since are also due to higher energy costs. If the farmer pays more to harvest the crop, soon those commodity prices increase as well. Of course, it isn’t all fossil fuels...The IRA has not and will not cut inflation overnight. But that fight is indeed a big part of the bill’s legacy: Play the long game of tackling all three types of climate-related inflation — fossilflation, climateflation, and greenflation — at their very core, and indeed justify the law’s name.}}</ref>

==Regulatory bodies and policies==
===United States===
[[File:Commodity Prices.webp|thumb|330px|right|Commodity Prices 
{{legend-line|#35DB3F solid 3px|[[soybean]]}}
{{legend-line|#DBC67D solid 3px|[[wheat]]}}
{{legend-line|yellow solid 3px|[[maize|corn]]}}
{{legend-line|#E8A02C solid 3px|[[copper]]}}
]]
In the United States, the principal regulator of commodity and futures markets is the [[Commodity Futures Trading Commission]] (CFTC). The [[National Futures Association]] (NFA) was formed in 1976 and is the futures industry's self-regulatory organization. The NFA's first regulatory operations began in 1982 and fall under the [[Commodity Exchange Act]] of the [[Commodity Futures Trading Commission Act of 1974|Commodity Futures Trading Commission Act]].<ref name=NFA>
{{cite web
|publisher=National Futures Association
|url=http://www.nfa.futures.org/nfamanual/NFAManual.aspx
|title=National Futures Association
}}</ref>

Dodd–Frank was enacted in response to the 2008 financial crisis. It called for "strong measures to limit speculation in agricultural commodities" calling upon the CFTC to further limit positions and to regulate over-the-counter trades.<ref>{{cite web
|url=http://triplecrisis.com/position-limits-for-agricultural-commodity-derivatives-getting-tougher-or-tough-to-get/
|title=Position Limits for Agricultural Commodity Derivatives: Getting Tougher or Tough to Get?
|first=Jennifer
|last=Clapp
|date=5 December 2012
|publisher=Triple Crisis
|access-date=19 April 2013
|archive-date=17 March 2013
|archive-url=https://web.archive.org/web/20130317101136/http://triplecrisis.com/position-limits-for-agricultural-commodity-derivatives-getting-tougher-or-tough-to-get/
|url-status=dead
}}</ref>

===European Union===
[[Markets in Financial Instruments Directive]] (MiFID) is the cornerstone of the [[European Commission]]'s [[Financial Services Action Plan]] that regulate operations of the EU financial service markets. It was reviewed in 2012 by the [[European Parliament]] (EP) and the [[Economic and Financial Affairs Council]] (ECOFIN).<ref name=SOMO26oct2012>{{cite journal
|url=http://somo.nl/dossiers-en/sectors/financial/eu-financial-reforms/newsletter-items/issue-14-october-2012/european-parliament-decides-to-tackle-commodity-speculation-a-little-bit
|title=European Parliament decides to tackle commodity speculation: a little bit
|first=Markus
|last=Henn
|issue=14
|journal=Centre for Research on Multinational Corporations 
|date=October 2012
|access-date=19 April 2013
|archive-url=https://web.archive.org/web/20130614125303/http://somo.nl/dossiers-en/sectors/financial/eu-financial-reforms/newsletter-items/issue-14-october-2012/european-parliament-decides-to-tackle-commodity-speculation-a-little-bit
|archive-date=14 June 2013
|url-status=dead
}}</ref> The European Parliament adopted a revised version of Mifid II on 26 October 2012 which include "provisions for position limits on commodity derivatives", aimed at "preventing market abuse" and supporting "orderly pricing and settlement conditions".<ref name=MifidII>
{{cite web
|title=Commodity position limits cause Mifid II confusion
|first=Jay
|last=Maroo
|publisher=Energy Risk
|url=http://www.risk.net/energy-risk/news/2223045/commodity-position-limits-cause-mifid-ii-confusion
|date=13 November 2012
}}</ref>

The [[European Securities and Markets Authority]] (Esma), based in Paris and formed in 2011, is an "EU-wide financial markets watchdog". Esma sets position limits on commodity derivatives as described in Mifid II.<ref name=MifidII />

The EP voted in favor of stronger regulation of commodity derivative markets in September 2012 to "end abusive speculation in commodity markets" that were "driving global food prices increases and price volatility". In July 2012, "food prices globally soared by 10 percent" ([[World Bank]] 2012). Senior British MEP Arlene McCarthy called for "putting a brake on excessive [[food speculation]] and speculating giants profiting from hunger" ending immoral practices that "only serve the interests of profiteers".<ref name=EU>
{{cite news
|title=EU parliament approves moves to end 'abusive' speculation in commodity markets
|publisher=European Parliament
|url=http://www.theparliament.com/latest-news/article/newsarticle/eu-parliament-approves-moves-to-end-abusive-speculation-in-commodity-markets/#.UXCYIqLCaSo
|date= 27 September 2012
|first=Martin
|last=Banks
}}</ref> In March 2012, EP Member Markus Ferber suggested amendments to the European Commission's proposals, intended to strengthen restrictions on [[high-frequency trading]] and commodity price manipulation.<ref>{{Cite news
 | last = Reeve
 | first = Nick
 | title = Mifid amendment calls for commission ban to be scrapped
 | newspaper = Financial Times
 | date = 29 March 2012
 | url = http://www.ftadviser.com/2012/03/29/regulation/eu-legislation/mifid-amendment-calls-for-commission-ban-to-be-scrapped-WmaTS7n8lHtelsl3QTQzkO/article.html
 | url-status = dead
 | archive-url = https://web.archive.org/web/20120521123743/http://www.ftadviser.com/2012/03/29/regulation/eu-legislation/mifid-amendment-calls-for-commission-ban-to-be-scrapped-WmaTS7n8lHtelsl3QTQzkO/article.html
 | archive-date = 21 May 2012
 | df = dmy-all
 }}</ref>

==See also==
* [[Commodity risk]]
* [[Irrevocable fee protection agreement]]
* [[List of commodity booms]]
* [[Microexchanges]]

==Notes==
{{Reflist|group=notes}}

== References ==
{{Reflist|colwidth=30em}}

==Further reading==
<!-- last updated March 2023 -->
{{refbegin}}
* {{cite book |last1=Blas |first1=Javier |last2=Farchy |first2=Jack |title=The World for Sale: Money, Power and the Traders Who Barter the Earth's Resources |date=2022 |publisher=Cornerstone |location=London |isbn=9781847942654 |url={{GBurl|Le51ygEACAAJ}}}}
* {{cite news
|first=Andrew
|last=Longstreth
|editor=Alden Bentley
|url=https://www.reuters.com/article/us-arcada-cftc-lawsuit-idUSTRE74P6GF20110526
|title=CFTC faces high hurdles in oil manipulation case
|work=[[Reuters]]
|date=26 May 2011
}}
* {{cite book
|title=The History of Commodity Futures Trading and Its Regulation
|url=https://archive.org/details/historyofcommodi00mark
|url-access=registration
|first=Jerry W.
|last=Markham
|author-link=Jerry Markham
|publisher=Praeger
|location=New York
|year=1987
|page=[https://archive.org/details/historyofcommodi00mark/page/305 305]
|isbn=9780275923136
}}
* [https://web.archive.org/web/20130812135118/http://www.chicagofed.org/webpages/publications/understanding_derivatives/index.cfm Understanding Derivatives: Markets and Infrastructure] Federal Reserve Bank of Chicago, Financial Markets Group
* {{cite web
|publisher=National Futures Association
|title=Opportunities and Risk: an Educational Guide to Trading Futures and Options on Futures
|url=http://www.nfa.futures.org/NFA-investor-information/publication-library/opportunity-and-risk-entire.pdf
|location=Chicago, Illinois
|year=2006
|page=48
}}
{{refend}}

==External links==
*{{Commons category-inline|Commodity markets}}
*[https://web.archive.org/web/20121231194544/http://www.quandl.com/markets/global-commodity-markets Open Historical Commodity Price Data]

{{Commodity}}
{{Authority control}}

[[Category:Commodity markets| ]]
[[Category:Derivatives (finance)]]
[[Category:Financial markets]]
[[Category:Trade]]
[[Category:United States federal commodity and futures legislation]]