Commodities are marketable items produced to satisfy economic wants and needs. In investing, commodities can refer to either goods or services, but in the strictest sense, the term is reserved for a particular class of goods for which there is no qualitative differentiation across the market. These goods, such as petroleum or heating oil, are interchangeable (fungible) with no regard to brand or retailer.
Fungibility is the ability of customers to treat raw materials as equivalent to other raw materials without regard to who produced them. This can be considered to fall under the pillar of fungibility, the theory that the market treats everything as totally interchangeable.
For example, clothing items such as t-shirts, jeans, and shirts have many valuable characteristics to consumers, such as brand, fit, features, and perceived quality. As a result, these products are not fungible commodities.
Typically, commodities such as oil, gold, and a bushel of wheat have prices determined as a function of the market as a whole, not based on the value of a brand or other characteristic unique to the particular example of the commodity. This makes it possible to invest in future processes rather than in the individual companies that produce them.
South Korean beef is the world's highest-quality beef, considered a luxury product.
Commodities are physical objects that people buy or trade. Soft commodities, while physically still commodities, are traded on futures markets. Hard commodities such as oil are traded on commodity markets. Energy commodities are traded on the energy exchanges.
Examples of commodities include food, raw materials, and metals, but the term can also be applied to services such as access to the Internet.
Competition
A commodity is a term used to describe a good or service about which there is no differentiation in the eyes of consumers. For example, gasoline used to be a commodity but is now more often differentiated based on whether it has a high ethanol content. Commoditization occurs across a spectrumnothing is ever wholly fungiblebut the closer something becomes completely fungible, the more commoditized it becomes.
