Commodities are raw materials. Hard commodities are mined or extracted: crude oil, natural gas, gold, copper. Soft commodities are grown: wheat, coffee, sugar, cotton.
Soft commodities are especially sensitive to weather. Hard ones react more to industry and geopolitics.
Commodities are physical, so anything that disrupts getting them out of the ground or across the world affects price.
A drought, a mine strike, a blocked shipping route or a new export ban can cut supply overnight, and prices react immediately.
Producers and large buyers use commodity markets to lock in prices and protect their business. A farmer can agree today on a price for a harvest months away. A coffee chain can fix the price of next year's beans.
Both give up potential upside in exchange for certainty.
A futures contract is an agreement to buy or sell a set amount of a commodity at a fixed price on a future date. Most commodity trading happens through futures, and most positions are closed before delivery.
Commodities often move differently from shares. When inflation rises, for example, commodity prices can climb while stocks struggle.
