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In [[economics]], a '''commodity''' is the generic term for any marketable item produced to satisfy [[wants]] or [[needs]].<ref>Karl Marx, "A Contribution to the Critique of Political Economy" contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 29'' (International Publishers: New York, 1987) p. 269.</ref> Economic commodities comprise [[Good (economics)|goods]] and [[Service (economics)|services]].<ref>Karl Marx, "Outlines of the Critique of Political Economy(Rough Draft of 1857-1857)" contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 28'' (International Publishers: New York, 1986) p. 80.</ref> |
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The more specific meaning of the term ''commodity'' is applied to [[Good (economics)|goods]] only. It is used to describe a class of [[good (economics)|goods]] for which there is demand, but which is supplied without [[Qualitative data|qualitative]] [[product differentiation|differentiation]] across a [[market]].<ref>http://beginnersinvest.about.com/cs/commodities/f/whatcommodities.htm</ref> A commodity has full or partial [[fungibility]]; that is, the market treats its instances as equivalent or nearly so with no regard to who produced them. "From the taste of wheat it is not possible to tell who produced it, a Russian serf, a French peasant or an English capitalist."<ref>Karl Marx, "A Contribution to the Critique of Political Economy" contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 29'', p. 270.</ref> [[Petroleum]] and [[copper]] are other examples of such commodities,<ref>{{cite book |
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| last = O'Sullivan |
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| first = Arthur |
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| authorlink = Arthur O'Sullivan (economist) |
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| coauthors = Steven M. Sheffrin |
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| title = Economics: Principles in action |
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| publisher = Pearson Prentice Hall |
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| year = 2003 |
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| location = Upper Saddle River, New Jersey 07458 |
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| pages = 152 |
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| url = http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4 |
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| isbn = 0-13-063085-3}}</ref> their supply and demand being a part of one universal market. Items such as stereo systems, on the other hand, have many aspects of product differentiation, such as the [[brand]], the user interface, the perceived quality, etc. And, the demand for one type of stereo may be much larger than demand on the other. |
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In contrast, one of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded [[spot market|spot]] and [[Derivative (finance)|derivative]] markets. Generally, these are basic resources and [[agriculture|agricultural]] products such as [[iron ore]], [[crude oil]], [[coal]], [[salt]], [[sugar]], [[coffee bean]]s, [[soybean]]s, [[aluminum]], [[copper]], [[rice]], [[wheat]], [[gold]], [[silver]], [[palladium]], and [[platinum]]. Soft commodities are goods that are grown, while hard commodities are the ones that are extracted through [[mining]]. |
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There is another important class of energy commodities which includes electricity, gas, [[coal]] and oil. Electricity has the particular characteristic that it is usually uneconomical to store; hence, electricity must be consumed as soon as it is produced. |
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[[Commodification]] (also called [[commoditization]]) occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the [[intellectual capital]] necessary to acquire or produce it efficiently. As such, goods that formerly carried premium [[Profit margin|margins]] for [[market]] [[wikt:participation|participant]]s have become commodities, such as [[Generic drug|generic pharmaceuticals]] and [[dynamic random-access memory|DRAM chips]]. Another example is the credit card product, where all suppliers offer almost identical interest rates, fees, rewards programs, and bait & hook incentive models for new customers. Since the core credit card product is essentially identical, the only remaining market differentiators are branding & customer service. |
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There is a spectrum of commodification, rather than a binary distinction of "commodity versus differentiable product". Few products have complete undifferentiability and hence fungibility; even electricity can be differentiated in the market based on its method of generation (e.g., fossil fuel, wind, solar). Many products' degree of commodification depends on the buyer's mentality and means. For example, milk, eggs, and notebook paper are considered by many customers as completely undifferentiable and fungible; lowest price is the only deciding factor in the purchasing choice. Other customers take into consideration other factors besides price, such as environmental sustainability and animal welfare. To these customers, distinctions such as "organic versus not" or "cage free versus not" count toward differentiating brands of milk or eggs, and percentage of recycled content or forestry council certification count toward differentiating brands of notebook paper. |
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==Etymology== |
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The word ''commodity'' came into use in English in the 15th century, from the French ''[[:fr:commodité|commodité]]'', to a benefit or profit. Going further back, the French word derived from the Latin ''commoditatem'' (nominative ''commoditas'') meaning "fitness, adaptation". The Latin root ''commod-'' (from which English gets other words including ''commodious'' and ''accommodate'') meant variously "appropriate", "proper measure, time, or condition" and "advantage, benefit". |
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==Global commodities trading company== |
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This is a list of giant commodities trading companies who operate worldwide.<ref name=reuters> |
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{{cite news |
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|url= http://www.reuters.com/article/2011/10/28/us-commodities-houses-idUSTRE79R4S320111028 |
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|title= Corrected: Commodity Traders: The trillion dollar club |
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|publisher=[[Reuters]] |
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|date=Oct 28, 2011 |
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|accessdate=2008-06-12}} |
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</ref> |
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# [[Vitol]] |
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# [[Glencore International AG]] |
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# [[Trafigura]] |
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# [[Cargill]] |
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# [[Archer Daniels Midland]] |
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# [[Gunvor (company)]] |
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# [[Mercuria Energy Group]] |
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# [[Noble Group]] |
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# [[Louis Dreyfus Group]] |
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# [[Bunge Limited]] |
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# [[Wilmar International]] |
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# [[Olam International]] |
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==Commodity trade== |
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{{Main|Futures exchange|Commodity market}} |
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In the original and simplified sense, '''''commodities''''' were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer were considered equivalent. On a commodity exchange, it is the underlying standard stated in the contract that defines the commodity, not any quality inherent in a specific producer's product. |
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[[Commodities exchange]]s include: |
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*[[Chicago Board of Trade]] (CBOT) |
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*[[Chicago Mercantile Exchange]] (CME) |
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*[[Dalian Commodity Exchange]] (DCE) |
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*[[Global Board of Trade]] (GBOT) |
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*[[Euronext.liffe]] ([[LIFFE]]) |
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*[[Kansas City Board of Trade]] (KCBT) |
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*[[Bursa Malaysia|Kuala Lumpur Futures Exchange]] (KLSE) |
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*[[London Metal Exchange]] (LME) |
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*[[New York Mercantile Exchange]] (NYMEX) |
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*[[National Commodity Exchange Limited]] (NCEL) |
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*[[Multi Commodity Exchange]] (MCX) |
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*[[International Indonesian Forex Change Market]] (IIFCM) |
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*[[Marché à Terme International de France]] (MATIF) |
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[[Commodity markets|Markets for trading commodities]] can be very [[economic efficiency|efficient]], particularly if the division into pools matches demand [[market segmentation|segments]]. These markets will quickly respond to changes in [[supply and demand]] to find an [[Economic equilibrium|equilibrium]] [[price]] and quantity. In addition, investors can gain passive exposure to the commodity markets through a [[commodity price index]]. |
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===Commodity as a new asset class for pension funds and SWFs=== |
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In order to further [[Diversification (finance)|diversify]] their investments and mitigate the risks associated with [[inflation]]ary debasement of currencies, an increasing number of [[pension funds]] and [[sovereign wealth funds]] are allocating more capital to non-listed assets such as a commodities and commodity-related infrastructure.<ref name="turkishweekly">{{Cite news|author=M. Nicolas Firzli & Vincent 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= Q4 2011 |accessdate=30 July 2011 | location=.}}</ref> <ref name="revueanalyse">{{Cite news|author=M. Nicolas Firzli & Vincent Bazi |title= The Drivers of Pension & SWF Investment in Energy- Focusing on Natural Gas|url= http://worldpensions.org/uploads/Pension___SWF_Investment_in_Energy___Revue_Analyse___July_2012.pdf| work=Revue Analyse Financière, volume 44, pp. 41-43 |date= Q3 2012 |accessdate=7 July 2012 | location=.}}</ref> |
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Think-tanks such as the [[:fr: Forum Mondial des Fonds de Pension|World Pensions Council (WPC)]] have argued that, unlike previous [[recession]]ary [[cycle]]s, commodity prices could remain durably at relatively high levels as [[Gulf Arab]], [[Latin American]] and [[Asia]]n governments are less inclined to accommodate G7 nations on the supply front.<ref name="Euromoney ">{{Cite news|author=M. Nicolas J. Firzli quoted by Andrew Mortimer|title= Country Risk Sept. 2011: Past Defaults Offer Little Comfort |url= http://www.euromoney.com/Article/2898503/ChannelPage/0/AssetCategory/14/Country-risk-Past-defaults-offer-little-comfort-to-troubled-eurozone.html?p=2| work=Euromoney, volume 59 |date= September 2011 |accessdate=11 March 2012 | location=.}}</ref> |
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== Inventory data == |
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The [[inventory]] of commodities, with low inventories typically leading to more volatile future prices and increasing the risk of a "[[stockout]]" (inventory exhaustion). According to economist theorists, companies receive a [[convenience yield]] by holding inventories of certain commodities. Data on inventories of commodities are not available from one common source, although data is available from various sources. Inventory data on 31 commodities was used in a 2006 study on the relationship between inventories and commodity futures risk premiums.<ref>Gorton GB et al. (2008). [http://ssrn.com/abstract=996930 The Fundamentals of Commodity Futures Returns]. Yale ICF Working Paper No. 07-08.</ref> |
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==Commodities in Marxism== |
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{{for|the Marxist definition of a commodity|Commodity (Marxism)}} |
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In classical political economy and especially in Karl Marx's critique of political economy, a commodity is an object or a good or service ("product" or "activity"<ref>Karl Marx, "Outlines of the Critique of Political Economy" contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 28'', 80.</ref>) produced by human labour.<ref>Karl Marx, ''Capital: Volume I'' (International Publishers: New York, 1967) p. 38 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35'' (International Publishers: New York, 1996) p. 48.</ref> Objects are external to man.<ref>Karl Marx, ''Capital: Volume I'', p. 87 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35, p. 97.</ref> However, some objects attain "use value" to persons in this world, when they are found to be "necessary, useful or pleasant in life,"<ref>Aristotle, ''Politica'' (Oxford, 1966) p. 1257.</ref> "Use value" makes an object "an object of human wants,"<ref>Karl Marx, "Capital in General: The Commodity" contained in the ''Collected works of Karl Marx and Frederick Engels: Volume 29'' (International Publishers: New York, 1987) p. 269.</ref> or is "a means of subsistence in the widest sense."<ref>Karl Marx, "Capital in General: The Commodity" contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 29'', p. 269.</ref> |
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As society developed people found that they could exchange goods and services for other goods and services. At this stage, these goods and services became "commodities." Commodities are defined as objects which are offered for sale or are "exchanged in a market."<ref>Karl Marx, ''Capital: Volume I'' p. 36 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35'', p. 46.</ref> In the marketplace, where commodities are sold, "use value" is not helpful in facilitating the sale of commodities. Accordingly, in addition to having use value, commodities must have an "exchange value"--a value that could be expressed in the market.<ref>Adam Smith, ''Wealth of Nations'' (Pelican Books: London, 1970) p. 131 and David Ricardo, ''Principles of Political Economy and Taxation'' (Pelican Books: 1971, London) p. 55.</ref> |
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Prior to Marx, many economists debated as to what elements made up exchange value. [[Adam Smith]] maintained that exchange value was made up of [[economic rent|rent]], [[economic profit|profit]], [[labor economics|labour]] and the costs of wear and tear on the instruments of husbandry.<ref>Adam Smith, ''Wealth of Nations'' (Pelican Books: London, 1970) p. 153.</ref> [[David Ricardo]], a follower of Adam Smith, modified Smith's approach on this point by alleging that labour alone is the content of the exchange value of any good or service.<ref>David Ricardo, ''Principles of Political Economy and Taxation'' (Pelican Books: London, 1971) pp. 56-58.</ref> While maintaining that all exchange value in commodities was derived directly from the hands of the people that made the commodity, Ricardo noted that only part of the exchange value of the commodity was paid to the worker who made the commodity. The other part of the value of this particular commodity was labour that was not paid to the worker—unpaid labour. This unpaid labour was retained by the owner of the means of production. In capitalist society, the capitalist owns the means of production and therefore the unpaid labour is, therefore, retained by the capitalist as rent or as profit. The means of production means the site where the commodity is made, the raw products that are used in the production and the instruments or machines that are used for the production of the commodity. |
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However, not all commodities are reproducible nor were all commodities originally intended to be sold in the market. These priced goods are also treated as commodities, e.g. human labor-power, works of art and natural resources ("earth itself is an instrument of labour",<ref>Karl Marx, ''Capital: Volume I'', p. 179 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35'', p. 189.</ref> even though they may not be produced specifically for the market, or be non-reproducible goods. |
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Marx's analysis of the commodity is intended to help solve the problem of what establishes the economic value of goods, using the [[labor theory of value]]. This problem was extensively debated by [[Adam Smith]], [[David Ricardo]]<ref>David Ricardo, ''Principles of Political Economy and Taxation'' (Pelican Books, London, 1971) pp. 56-58.</ref> and [[Karl Rodbertus-Jagetzow]] among others. |
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All three of the above-mentioned economists, rejected the theory that labour composed 100% of the exchange value of any commodity. In varying degrees, these economists turned to supply and demand to establish the price of commodities. Marx held that the "price" and the "value" of a commodity were not synonymous. Price of any commodity would vary according to the imbalance of supply to demand at any one period of time. The "value" of the same commodity, would be consistent and would reflect the amount of labor value used to produce that commodity. |
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Prior to Marx, economists noted that the problem with using the "quantity of labour" to establish the value of commodities was that the time spent by an unskilled worker would be longer than the time spent on the same commodity by a skilled worker. Thus, under this analysis, the commodity produced by an unskilled worker would be more valuable than the same commodity produced by the skilled worker. Marx pointed out, however, that in society at large, an average amount of time that was necessary to produce the commodity would arise. This average time necessary to produce the commodity Marx called the "socially necessary labour time"<ref>Karl Marx, ''Capital: Volume I'', p. 39 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35'', p. 49.</ref> Socially necessary labour time was the proper basis on which to base the "exchange value" of a given commodity. |
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Value and price are not equivalent terms in economics, and theorising the specific relationship of value to market price has been a challenge for both liberal and Marxist economists. However, Marx held that the value and price of any commodity would coincide only when demand and supply were equivalent to each other. |
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==See also== |
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{{div col|colwidth=30em}} |
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* [[2000s commodities boom]] |
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* [[Commercial off-the-shelf|COTS]] |
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* [[Commodity (Marxism)]] |
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* [[Commodity currency]] |
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* [[Commodity fetishism]] |
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* [[Commodity markets]] |
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* [[Commodity money]] |
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* [[Commodity price index]] |
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* [[Jim Rogers]] (commodities expert) |
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* [[List of traded commodities]] |
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* [[Standardization]] |
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* [[Trade]] |
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{{div col end}} |
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==Notes== |
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{{Reflist|30em}} |
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==External links== |
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{{Wiktionary}} |
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* [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=592262 Pricing in Electricity Markets: A Mean Reverting Jump Diffusion Model with Seasonality] |
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[[Category:Commodities used as an investment|*]] |
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[[ar:سلعة أساسية]] |
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[[bg:Комодити]] |
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[[br:Marc'hadourezh]] |
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[[ca:Mercaderia]] |
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[[cs:Komodita]] |
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[[da:Handelsvare]] |
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[[de:Handelsware]] |
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[[es:Mercancía (economía)]] |
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[[fr:Commodité]] |
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[[ko:상품]] |
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[[id:Komoditas]] |
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[[it:Commodity]] |
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[[he:סחורה]] |
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[[kk:Биржалық тауар]] |
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[[mk:Стока]] |
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[[ms:Komoditi]] |
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[[ru:Биржевой товар]] |
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