comodity

What is a Commodity?

If we look at the legal definition of a commodity, it is defined as ‘a tangible item that may be bought or sold; something produced for commerce’. Therefore, commodities are considered to be marketable goods or wares, such as raw or partially processed materials, farm products, or even jewellery. Intangibles, such as human labour, services, or marketing & advertising, are typically not considered to be commodities.

Where, when and what – the fundamentals of commodity pricing?

End-users buy physical commodities to meet staple needs. The commodity has to be fit for purpose and it needs to be available. These requirements determine the three pillars for pricing:

 • Where: delivery location

 • When: delivery timing

 • What: the product quality or grade 

Commodity trading firms bridge gaps between producers and consumers based on these three pillars, through transformations in space, time and form.

 • Space: transport the commodity to alter its location;

 • Time: store the commodity to change the timing of delivery;

 • Form: blend the commodity to affect its quality or grade.