Commodities

Commodity markets are those where raw or primary products are exchanged. These raw commodities which are standardized and graded are bought and sold on regulated exchanges, in standardized Contracts. There are 48 major commodity exchanges that trade over 96 commodities, ranging from wheat and cotton to silver and oil. Each product has a standard grade and similar specifications apply for others like orange juice, cocoa, sugar, wheat, corn, barley, milk, feedstuffs, fruits, vegetables, other grains, other beans, hay, other livestock, meats, poultry, eggs, or any other commodity which is so traded.

The contracts are based on the "Forward" Contracts by which a trader can make an agreement to buy at a certain point of time and pay and deliver later. Forward contracts have evolved and have been standardized into what we know today as futures contracts. Athough it is more complex today, early "Forward" contracts were used for rice in seventeenth century Japan. Modern "forward", or futures agreements, began in Chicago in the 1840s, with the appearance of the railroads, Chicago being centrally located emerged as the hub between Midwestern farmers and producers and the east coast consumer population centers.

In addition, delivery day, method of settlement and delivery point must all be specified. Typically, trading must end 2 (or more) business days prior to the delivery day, so that the routing of the shipment (which for soybeans is 30,000 kilograms or 1,102 bushels) can be finalized via ship or rail, and payment can be settled when the contract arrives at any delivery point.

Generally, governments must provide a common regulatory or insurance standard and some release of liability, or at least a backing of the insurers, before a commodity market can begin trading. Usually the product or service are guaranteed or insured to be free of liability based on where it came from and how it got to market, e.g. wood must be free from claims that it comes from protected forests, royalty payments must be free of claims of plagiarism or piracy. Otherwise, it becomes impossible for sellers to guarantee a uniform delivery.

For pricing related enquiries of products, mail to sales@captaininfotech.com or contact us.