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WHAT IS A COMMODITY

 

 

A commodity is a basic good used in commerce that is interchangeable with other goods of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange or a B to B contract, commodities must also meet specified minimum standards, also known as a basis grade (or contract grade) the minimum accepted standard that a deliverable commodity must meet for use as asset or trade.


Whether of plant, animal or mineral origin, commodities have played and still play an essential role in the development of all countries, which produce, import and export ever-increasing volumes. As flows became larger and more widespread over time, the priority soon became to create physical structures in which merchants, traders and brokers could trade, buy and sell (immediately or forward) commodities.


As flows became larger and more widespread over time, the priority soon became to create physical structures in which merchants, traders and brokers could trade, buy and sell (immediately or forward) commodities. Thus, from the 16th century, stock exchanges began to flourish throughout Europe, notably with the Amsterdam Stock Exchange (1530), the Royal Exchange (1554) in London and two centuries later the Paris Stock Exchange. (1767) and the London Sales Room within the Royal Exchange (1811). On the American side, we had to wait until the 19th and 20th centuries to see the creation of the Chicago Board of Trade and the New York Board of Trade. Today, purely financial transactions have largely supplanted physical transactions in number.


The main companies that produce and market raw materials are: ExxonMobil, Total, Shell, BP and Chevron for oil; BHP Billiton, Rio Tinto and Vale for minerals; Nestlé, Danone, Monsanto, Tyson Foods and JBS Friboi for food.


Products traded in the “Commodity Market”


In a global approach, are considered as commodities: raw materials extracted from or produced by nature; essential, common and highly standardized consumer goods.


  Energy : coal, crude oil, brent, diesel, natural gas, uranium, thorium, ethanol, propane, hydrogen.


  Metals : aluminum, iron, gold, silver, copper, platinum, palladium, steel, zinc, tin, lead, nickel, cobalt.


  Agriculture : wheat, rice, corn, oats, cocoa, coffee, tea, flour, rapeseed, beans, rubber, fruit, cotton, seaweed, sugar, soybeans, soybean oil, palm oil, olive oil, juice orange, wood.


  Minerals : sand, gravel, clay, stone, slate, salt, limestone.


  Animals : milk, cheese, butter, pork, goat, sheep, skins, wool, shellfish, fish, animal fats, ivory.


Brokerage companies such as Vitol, Glencore, Cargill, Archer Daniels Midland (ADM), Bunge, Louis Dreyfus Company (LDC) and Trafigura are also involved in the process of selling commodities and even sometimes extracting through the acquisition of mines by example. Glencore thus sold nearly 80 million tonnes of iron in 2018. These companies are mostly based in Switzerland, a global hub for commodity trading.


Banks are also very active in the futures and over-the-counter commodity markets. Most have specialized commodity divisions and offices where market experts constantly monitor price trends and developments. Some have even equipped themselves with physical structures (storage warehouses, refineries, power stations, oil tankers, etc.) in order to directly influence raw material stocks and therefore prices. It will mainly be a question of stockpiling to drive up prices and destocking to drive them down. Goldman Sachs made several hundred million dollars in profits by buying aluminum bar storage warehouses in Detroit in 2010. Indeed, its control over these warehouses allowed it to control the delivery times of its bars ( which went from 6 weeks to 16 months on average) and therefore to push up prices even though the world supply of aluminum increased during this period.


Several stock exchanges focus most of the financial activities and are sometimes specialized in certain commodities.


  • – Chicago Board of Trade (CBOT, wheat, corn, raw rice, oats, soybeans, oil, flour, milk, lumber)


  • – Chicago Mercantile Exchange (CME, animal raw materials (carcasses, live animals…))


  • – New York Mercantile Exchange (NYME, cocoa, arabica coffee, sugar, orange juice, cotton)


  • – Singapore Commodity Exchange (SICOM, petrol, kerosene, diesel)


  • – Tokyo Grain Exchange (TGE, soybeans, arabica coffee, robusta coffee, red beans, corn, brown sugar, natural silk)


  • – London Metal Exchange (LME, aluminium, copper, tin, nickel, lead, zinc, steel as well as many strategic and precious metals)


  • – London Bullion Market Association (LBMA, gold, silver)


  • – International Petroleum Exchange (IPE, crude oil, brent, diesel)


  • – Paris Stock Exchange (Paris Stock Exchange, wheat, corn, rapeseed, pork carcass, silver, iridium, gold, palladium, platinum, rhodium)


 

Many companies need a reliable partner for serious business without headhache to find real supply that fit their needs. All services are strictly monitored following detailled services contract fully agreed by both parties.

 

  Commodity sourcing


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