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In economics, a commodity is a marketable item produced to satisfy wants or needs. Often the item is fungible.
Economic commodities comprise goods and services.

1 Etymology
Yerba mate (left), coffee bean (middle) and tea (right), all used
2 Types of commodity
for caffeinated infusions, are commodity cash crops.
3 Commoditization
4 Global commodities trading company
5 Commodity trade
5.1 Commodity as a new asset class
for pension funds and SWFs
6 Inventory data
7 Commodification of labor
8 See also
9 Notes
10 External links

The word commodity came into use in English in the 15th century, from the French commodit, "amenity,
convenience". Going further back, the French word derives from the Latin commoditas, meaning "suitability,
convenience, advantage". The Latin word commodus (from which English gets other words including
commodious and accommodate) meant variously "appropriate", "proper measure, time, or condition", and
"advantage, benefit".

Types of commodity
The term commodity is specifically used for an economic good or service when the demand for it has no
qualitative differentiation across a market.[1] In other words, a commodity good or service has full or partial but
substantial fungibility; that is, the market treats its instances as equivalent or nearly so with no regard to who
produced them. As the saying goes, "From the taste of wheat, it is not possible to tell who produced it, a
Russian serf, a French peasant or an English capitalist."[2] Petroleum and copper are other examples of such
commodities,[3] 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 and the
perceived quality. The demand for one type of stereo may be much larger than demand for another.

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 and derivative markets.
Generally, these are basic resources and agricultural products such as iron ore, sugar, rice. Soft commodities are
goods that are grown, while hard commodities are ones that are extracted through mining.
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 processed.

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 margins for market participants have become commodities, such as generic pharmaceuticals
and DRAM chips. An article in The New York Times cites multivitamin supplements as an example of
commoditization; a 50 mg tablet of calcium is of equal value to a consumer no matter what company produces
and markets it, and as such, multivitamins are now sold in bulk and are available at any supermarket with little
brand differentiation.[4] Following this trend, nanomaterials are emerging from carrying premium profit margins
for market participants to a status of commodification.[5]

There is a spectrum of commoditization, 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), in markets where
energy choice lets a buyer opt (and pay more) for renewable methods if desired. Many products' degree of
commoditization depends on the buyer's mentality and means. For example, milk, eggs, and notebook paper are
not differentiated by many customers; for them, the product is fungible and lowest price is the main decisive
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 Forest Stewardship Council certification count toward differentiating brands of notebook paper.

Global commodities trading company

This is a list of companies trading globally in commodities, descending by size as of October 28, 2011.[6]

1. Vitol
2. Glencore International AG
3. Trafigura
4. Cargill
5. Salam Investment
6. Archer Daniels Midland
7. Gunvor (company)
8. Mercuria Energy Group
9. Noble Group
10. Louis Dreyfus Group
11. Bunge Limited
12. Wilmar International
13. Olam International

Commodity trade
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.

Commodities exchanges include:

Bourse Africa (formerly GBOT)

Bursa Malaysia Derivatives (MDEX)
Chicago Board of Trade (CBOT)
Chicago Mercantile Exchange (CME)
Dalian Commodity Exchange (DCE)
Euronext.liffe (LIFFE)
Kansas City Board of Trade (KCBT)
London Metal Exchange (LME)
March Terme International de France (MATIF)
Multi Commodity Exchange (MCX)
National Commodity and Derivatives Exchange (NCDEX)
National Commodity Exchange Limited (NCEL)
New York Mercantile Exchange (NYMEX)
Mercantile Exchange Nepal Limited (MEX)

Markets for trading commodities can be very efficient, particularly if the division into pools matches demand
segments. These markets will quickly respond to changes in supply and demand to find an equilibrium price and
quantity. In addition, investors can gain passive exposure to the commodity markets through a commodity price

Commodity as a new asset class for pension funds and SWFs

In order to further diversify their investments and mitigate the risks associated with inflationary 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.[7]

Inventory data
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

Commodification of labor
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"[9]) produced by human labour.[10] Objects are external to
man.[11] However, some objects attain "use value" to persons in this world, when they are found to be
"necessary, useful or pleasant in life,"[12] "Use value" makes an object "an object of human wants,"[13] or is "a
means of subsistence in the widest sense."[14]

As society developed, people found that they could trade 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."[15] 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.[16]

Prior to Marx, many economists debated as to what elements made up exchange value. Adam Smith maintained
that exchange value was made up of rent, profit, labour and the costs of wear and tear on the instruments of
husbandry.[17] 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.[18] 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 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.

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 labour-power, works of art and natural
resources ("earth itself is an instrument of labour"),[19] even though they may not be produced specifically for
the market, or be non-reproducible goods.

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[20] and Karl Rodbertus-Jagetzow among others.

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 labour value used to
produce that commodity.

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"[21]
Socially necessary labour time was the proper basis on which to base the "exchange value" of a given

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.
See also
2000s commodities boom
Commodity (Marxism)
Commodity currency
Commodity fetishism
Commodity market
Commodity money
Commodity price index
List of traded commodities

2. 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.
3. O'Sullivan, Arthur; Steven M. Sheffrin (2004). Economics: Principles in action. Pearson / Prentice Hall.
ISBN 0-13-063085-3.
4. Natasha Singer; Peter Lattman (15 March 2013). "Workout Supplement Challenged". The New York Times. Retrieved
17 March 2013.
5. C. McGovern, Commoditization of nanomaterials. Nanotechnology Perceptions 6 (2010) 155178.
6. "Corrected: Commodity Traders: The trillion dollar club". Reuters. Oct 28, 2011. Retrieved 2008-06-12.
7. M. Nicolas Firzli & Vincent Bazi (2011). "Infrastructure Investments in an Age of Austerity : The Pension and
Sovereign Funds Perspective". Revue Analyse Financire, volume 41. . Archived from the original on 17 September
2011. Retrieved 30 July 2011.
8. Gorton GB et al. (2008). The Fundamentals of Commodity Futures Returns ( Yale
ICF Working Paper No. 07-08.
9. Karl Marx, "Outlines of the Critique of Political Economy" contained in the Collected Works of Karl Marx and
Frederick Engels: Volume 28, 80.
10. 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.
11. 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.
12. Aristotle, Politica (Oxford, 1966) p. 1257.
13. 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.
14. Karl Marx, "Capital in General: The Commodity" contained in the Collected Works of Karl Marx and Frederick
Engels: Volume 29, p. 269.
15. 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.
16. 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.
17. Adam Smith, Wealth of Nations (Pelican Books: London, 1970) p. 153.
18. David Ricardo, Principles of Political Economy and Taxation (Pelican Books: London, 1971) pp. 56-58.
19. 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.
20. David Ricardo, Principles of Political Economy and Taxation (Pelican Books, London, 1971) pp. 56-58.
21. 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.

External links
Pricing in Electricity Markets: A Mean Reverting Jump Diffusion
Look up commodity in
Model with Seasonality ( Wiktionary, the free
/sol3/papers.cfm?abstract_id=592262) dictionary.
Collection of current and historical commodities data
( from Quandl
[1] (
Conceptual problems in commodity regulation (

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