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What are commodities?

 

Commodities are raw materials, that are required and valuable to the world’s infrastructure. 8 billion people rely on commodities, to cater to their needs, whether it’s for food, energy or metals.

 

Commodities have minimal differences in quality between producers, but don’t differ much from one another. A product reaches commodity status, when the end consumer will buy it, irrespective of who produced it.

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commodities
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Oil seeds

Crops cultivated for the oil contained in their seeds. A valuable raw material with food and non-food applications After the oil is extracted, the seeds are used for meals and animal feed.

Canola: Abbreviation of Canadian Oil Low Acid. Also known as rapeseed, it’s the 3rd largest source of vegetable oil. Canola is a type of rapeseed bred by Canadians, with low erucic acid (toxic to the heart at high doses). Belongs to the family of Brassicaceae or cruciferous (broccoli, cabbage, cauliflower, radish). Major producers are Canada, India, China, Australia, Russia and the EU.

Exchange: ICE Futures Canada

 

Symbol: RS

 

Contract size: 20 Tonnes

Cotton: Cottonseed oil is used to make vegetable oil. Accounts for 35% of all fibres (like flax, hemp, bamboo, sisal and jute). Biggest producers are China, India and the US. From 50 cotton plant types, only 4 are domesticated. These are Gossypium Hirsutum (upland cotton – approx. 90% of global consumption, also makes margarine), Gossypium Barbadense (Egyptian cotton Gossypium Arboretum (tree cotton) and Gossypium Herbaceum (levant cotton).

Exchange: CME

 

Symbol: TT

 

Contract size: 50,000 pounds

Palm oil (USD Malaysian Crude): An edible oil from the fruit pulp of African (Elaeis guineensis) and American (Elaeis oleifera) palm trees. Palm trees also produce kernel and coconut oil which are different types of oils. Plam oil is the most traded oil in the world, followed by sunflower seed, soybean and rapeseed. Biggest producers are Indonesia, Malaysia, Thailand, Colombia and Nigeria.

Exchange: CME

 

Symbol: CPO

 

Contact size: 25 Metric Tons

Soybeans: Extracted from the soybean (glycine max) seeds. After palm oil, it has the highest consumption (both as vegetable and cooking) oil worldwide. Biggest producers include China, the US, Brazil, Argentina and the EU. Argentina introduced “soy dollar” to promote more production of soybeans, by guaranteeing an above market peso ARS/USD price.

Exchange: CME

 

Symbol: ZS

 

Contract size: 5,000 bushels (136 metric tons)

Cereal grains

Grains, aka ‘cereals’ or ‘cereal grains’, are the edible seeds of the Poaceae grass family, a heavily cultivated crop globally. A staple of human food along with roots/tubers (carrots, potatoes, taro) and animal products, they are used with minimal processing by humans, by livestock and in other industrial uses like ethanol (from distillation of corn and soybeans).

Wheat: There are 6 classes of wheat in the US (by colour, hardness and growing season). Hard Red Winter and Hard Red Spring (60% of total US produce for raised dough products), Hard White, Soft White (15% of produce), Soft Red Winter (23% of produce for cakes and Durum (premium wheat used for pasta). Biggest producers include China, India, Russia, US and France.

Exchange: CME

 

Symbol: ZW

 

Contract Size: 5,000 bushels (136 metric tons)

Corn/maize: Corn (sweet corn) is in the same family of maize with a difference in how sweet it is. There are various varieties with differences in sweetness and colour. Corn can be sold fresh, frozen or canned. Biggest producers include the US, China, Brazil, the EU, Argentina and Mexico. Other than food, it is used in beverages, for animal feed, biodegradable materials and fuel ethanol.

Exchange: CME

 

Symbol: ZC

 

Minimum contract size: 5,000 bushels

Oats: A grain with high soluble fiber content, with anti-inflammatory properties, consumed both by humans and animals. Biggest producers include the EU, Russia, Canada, Australia and the US. South America (Brazil, Chile and Argentina) are also heavy producers. Oats compete with corn in terms of price (when one rises, farmers turn to the other).

Exchange: CME

 

Symbol: ZO

 

Contract size: 5,000 bushels

Barley: The world’s oldest cultivated grain. EU is the largest producer, followed by Russia and Australia. Still grown but replaced largely by corn although barley is richer in protein. A big portion is produced to create malt for beer, whisky, malted milk, malt vinegar, Maltesers, malt loaf, flour and bagels, while the rest is used for livestock feed.

Exchange ICE Futures Canada NCDEX Futures India
Symbol BW Barley JPR
Minimum contract size 20 Metric Tons (tonnes) 10 Metric Tons

Rough rice: Rice is classified according to its milling state. Rough (or paddy) rice still has its husk, brown rice doesn’t have a husk but retains its bran layer and germ (pericarp) after milling, semi or wholly milled rice has its pericarp partially or completely removed using special tapering cylinders and broken rice is damaged white rise from the milling process (used for baby formulas, rice cereal and flour). Biggest producers include China, India, Bangladesh, Indonesia and Vietnam who are also the biggest consumers.

Exchange: CME

 

Symbol: ZR

 

Contract size: 2,000 hundredweights (91 Metric Tons)

Meat

Since the 1600s the term livestock and cattle was used interchangeably. Today livestock has a broader definition since cattle is not the only meat traded.

Lean hogs Pigs that reach 120kg (or 250 pounds), which is the minimum slaughter weight. It takes around 6 months to get to this size. Biggest producers are China, the EU, the US and Brazil. A pork “cutout” uses prices paid for wholesale cuts of pork like the loin, butt, picnic, rib, ham, and belly.

  Lean hog Pork cutout
Exchange CME CME
Symbol HE PRK
Contract size 40,000 pounds 40,000 pounds


Feeder Cattle refers to feeder steers (castrated males) that are small cattle (600-800 pounds) that are fed with corn and other grains, to reach the size of “live cattle”.
Live cattle are steers (male) or heifers (female) cattle that reached a size of 1,200-1,400 pounds (finished product). Byproducts of livestock include the hide (leather, felt), Organs (for food, oil, gelatin), bones/hooves (fertilizers and bone products).

  Feeder cattle Live cattle
Exchange CME CME
Symbol GF LE
Contract size 50,000 pounds (23 metric tons of feeder steers 40,000 pounds (18 metric tons of live steers or heifers

Dairy

Dairy uses market standards instituted by the Chicago Butter and Egg Board in 1898. In 1919, the organization reformed into the Chicago Mercantile Exchange.

Milk

 

Exchange: CME

 

Symbol: DC

 

Contract size: 200,000 pounds (2,000 cwt)

Butter (cash settled)

 

Exchange: CME

 

Symbol: CB

 

Contract size: 20,000 pounds

Dry Whey (byproducts of curdled milk)

 

Exchange: CME

 

Symbol: DY

 

Contract size: 44,000 pounds

Cheese (cash settled)

 

Exchange: CME

 

Symbol: CSC

 

Contract size: 20,000 pounds

Softs

Although the term “softs” applies to all agricultural products that are grown and raised, a more accurate description relates to products that grow in tropical regions primarily. Farmers plant these crops year after year with the crop ending as soon as the harvest ends.

Frozen Concentrated Orange Juice (FCOJ): FCOJ is the byproduct of an industry challenged with the perishability of fresh orange juice. It was introduced in 1947. Biggest producers include Brazil, Mexico, the US, the EU and South Africa.

Exchange CME ICE US
Symbol FJ OJ
Contract size 15,000 pounds 15,000 pounds

Coffee: From over 120 species of coffee plants, of the family Rubiaceae, the two most prominent are Coffea Arabica (approx. 70% of coffee production) and Coffea Canephora (30% of coffee production). Global production (and consumption) reached 11 million tonnes. Biggest producers include Brazil, Vietnam, Colombia, Indonesia and Honduras.

Exchange: CME

 

Symbol: KT

 

Contract size: 37,500 pounds

Cocoa: Cocoa beans are grown on the Theobroma cacao tree (native to the Amazon rainforest). The beans are cut through the middle and examined for mold, slate, insect damage and other defects and are graded as Good Fermented (GF), Fair Fermented (FF) and Fair Average Quality (FAQ). Cocoa is traded on ICE US, ICE Europe and CME Europe. 50% of cocoa comes from Cote d’Ivoire, Cameroon and Togo and 30% is processed in the EU, so futures contracts are now also denominated in Euro (other than GBP and USD).

Exchange: CME

 

Symbol: CJ

 

Minimum contract size: 10 Metric Tons

Sugar #11: Sugar is extracted from sugarcanes and sugar beets. After the initial processing (crushing canes/slicing beets), the product is raw sugar that is unfit for human consumption until processed. Sugar #11 refers to raw sugar trades with some impurities. This is measured by polarization (or pol). Pure sugar measures at 100degrees, and the lower the pol, the more impurities it has. #11 has a pol of 96 degrees. Anything above that, is paid at a premium. Biggest producers include Brazil, India, the EU, China and Thailand.

Exchange: CME

 

Symbol: YO

 

Contract size: 112,000 pounds

Other softs

Softs that don’t fit in the above classes

Rubber: Can be produced naturally (40% of global consumption) from the Havea Brasiliensis tree (the Para Rubber tree native to the Amazon), or synthetically (60% of consumption) using petroleum sources. The use of tapping (like with Maple trees) cuts the tree from where the milky sap comes out of. Biggest producers include Thailand, Indonesia, Vietnam, India and China.

Physical trading: New York (NYMEX), London and Kuala Lumpur

Derivative trading: Tokyo Commodity Exchange, Osaka Mercantile Exchange and the Singapore Commodity Exchange

 

Exchange: Tokyo Commodities Exchange

 

Symbol: JRU

 

Contract size: 5,000 KG (5 tonnes)

Wool: One of the oldest textiles, derived from the fleeces of animals (primarily sheep),. Production starts with shearing, grading, cleaning, carded for imperfections, yarning, weaving, dyed and finished. The Australian Stock Exchange has 2 types of futures contracts, greasy (21 micron) and fine (19 micron). Microns measure the thickness of the wool. Merino is a sheep breed that is used as a standard quality wool, known for strength and durability.

Greasy (21 micron) Fine (19 micron)
Exchange ASX ASX
Symbol GW FW
Contract size 2,500 Kg 2,500 Kg

Lumber: Wood processed into beams and planks (can be any length). It is graded as first/second (hardwoods), select (high grade softwoods and some hardwoods) and common (lowest grade). Lumber is a leading economic indicator due to its many uses in construction. When prices rise, its either due to stimuli like falling interest rates, or strong economic conditions that increase the construction sector demand.

Exchange: CME

 

Symbol: LBR

 

Contract size: 27,500 board feet (1 board foot = 0,002 cubic meter)

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Precious Metals

 

Rare, highly valuable – economically – metals. Characterized by high demand as safe heaven investments as well as their applications in various industries.

Precious metals are classified as “noble” since they are corrosion resistant and found in nature in their raw form (except silver that can be found with sulphur).

commodities

Precious Metals

 

Rare, highly valuable – economically – metals. Characterized by high demand as safe heaven investments as well as their applications in various industries.

Precious metals are classified as “noble” since they are corrosion resistant and found in nature in their raw form (except silver that can be found with sulphur).

commodities

Precious Metals

 

Rare, highly valuable – economically – metals. Characterized by high demand as safe heaven investments as well as their applications in various industries.

Precious metals are classified as “noble” since they are corrosion resistant and found in nature in their raw form (except silver that can be found with sulphur).

commodities

Precious Metals

 

Rare, highly valuable – economically – metals. Characterized by high demand as safe heaven investments as well as their applications in various industries.

Precious metals are classified as “noble” since they are corrosion resistant and found in nature in their raw form (except silver that can be found with sulphur).

commodities

Iron ore

 

98% of iron ores are converted into “pig iron” used in steelmaking.

The term “pig iron” was coined when hot metal was cast into ingot moulds that were laid out in sand beds. The iron was fed from a channel connected with the moulds, and it resembled a sow (female pig) with her litter of feeding pigs.

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Base metals

 

Common, industrial, non-ferrous metals (they contain no iron). Nickel is the only ferromagnetic material (magnetized, even though its non-ferrous) (like cobalt).

Base metals are inexpensive relative to precious metals due to their abundance, but invaluable for global infrastructure, machinery and construction.

commodities

Base metals

 

Common, industrial, non-ferrous metals (they contain no iron). Nickel is the only ferromagnetic material (magnetized, even though its non-ferrous) (like cobalt).

Base metals are inexpensive relative to precious metals due to their abundance, but invaluable for global infrastructure, machinery and construction.

commodities

Base metals

 

Common, industrial, non-ferrous metals (they contain no iron). Nickel is the only ferromagnetic material (magnetized, even though its non-ferrous) (like cobalt).

Base metals are inexpensive relative to precious metals due to their abundance, but invaluable for global infrastructure, machinery and construction.

commodities

Base metals

 

Common, industrial, non-ferrous metals (they contain no iron). Nickel is the only ferromagnetic material (magnetized, even though its non-ferrous) (like cobalt).

Base metals are inexpensive relative to precious metals due to their abundance, but invaluable for global infrastructure, machinery and construction.

commodities

Base metals

 

Common, industrial, non-ferrous metals (they contain no iron). Nickel is the only ferromagnetic material (magnetized, even though its non-ferrous) (like cobalt).

Base metals are inexpensive relative to precious metals due to their abundance, but invaluable for global infrastructure, machinery and construction.

commodities

Base metals

 

Common, industrial, non-ferrous metals (they contain no iron). Nickel is the only ferromagnetic material (magnetized, even though its non-ferrous) (like cobalt).

Base metals are inexpensive relative to precious metals due to their abundance, but invaluable for global infrastructure, machinery and construction.

commodities
commodities
commodities

Part 3 | Coal

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commodities
commodities

Nuclear Energy

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commodities

Renewable Energy

Solar

 

Solar panels are series of panels that have photovoltaic cells (PV), and are made of the chemical element crystalline silicon. Each silicon atom contains 14 electrons.

 

The light from the sun has very small particles called photons. When the sunlight hits the PV cells, the photons kick the electrons off the atoms of the silicon, sending them into a frenzy. They flow through the positive and negative charges present in the cells, all the way to an inverter that converts the Direct Current (DC) to Alternating Current (AC) that we use for our electricity needs.

Wind

 

The strongest winds are produced in the middle of the oceans. This doesn’t stop us though from installing wind turbines on land and harness the power of the wind.

 

Normally found on hills with strong winds, wind turbines have massive blades (can be horizontal axis or vertical axis designs) that spin when the wind hits them. These blades are connected with a rotor that spins a generator. The generator produces electricity through electromagnetic induction that runs through a transformer and converts it to the appropriate voltage we use.

Water

 

Did you ever hear of hydrogen bonding? Bonds form between neighboring hydrogen and oxygen atoms of adjacent water molecules helping them to stay tight to one another, making water a mighty ally or enemy depending on the situation.

 

Through controlled flows, water is allowed to spill onto blades of turbines that spin and produce the electricity. Water can be sourced from a dam, river canals or man-made reservoirs depending on the place of the plant.

Geothermal

 

Tectonic plates are not only associated with bad situations like earthquakes. Near their boundaries, plants are built to extract geothermal energy from the earth’s crust. It is found mostly around volcanoes, hot springs and geysers

 

The process is as simple as injecting water deep underground where its hot, and receive back compressed steam to turn a turbine that produces electricity. 90% of Iceland’s energy is geothermal and more than 26 countries adopted its use.

Will renewable energy ever be traded?

How to trade commodities?

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