- Energies, Grains, Softs, Meats, and Financials
Commodity Types - Energies, Grains, Softs, Meats and Financials
Commodities are categorized for ease of price comparison, research and other conveniences in trading. Investors interested in getting involved in one of the riskiest, and potentially most profitable, areas will need to know the basics.
One of the most active areas recently, 'the energies' encompass a basketful of products used to provide energy to heat and power homes and businesses. The most common are petroleum and its byproducts: crude oil, heating oil, propane, natural gas, coal and a few others, mostly sub-types or derivatives.
Each commodity has its distinctive 'tick' (minimum price change, set by the exchanges) and standard contract size. A standard contract size is the amount covered by a standard futures contract. In the case of crude oil, for example, the amount is 1,000 barrels. By contrast, the amount for wheat is 5,000 bushels.
Wheat, oats, corn, rice and soybean are all agricultural products traded on various exchanges, not least of which is the venerable Chicago Board of Trade (CBOT). Here again the exchanges also trade the product, as well as futures and options contracts on these and several derivative products such as bean oil.
Each product has a tick, unit and standard contract size. Some prices, like soybean meal, are listed in dollars per ton where the standard contract size is 100 tons. Easy to see why most traders never see the actual commodity.
Coffee, cocoa, sugar, cotton and orange juice are all 'soft' commodities, many of which are traded on the aptly named CSCE (Coffee, Sugar and Cocoa Exchange). Interestingly, since 80% of the oranges grown in the U.S. are turned into frozen orange juice concentrate, it's the juice that is traded as a commodity, not the fruit.
A relative newcomer on the New York Cotton Exchanges, FCOJ (Frozen Concentrated Orange Juice) has been actively traded since the creation and widespread use of inexpensive refrigeration, post WWII.
Live cattle, pork bellies and lean hogs, and some derivatives are traded on various exchanges, including the KCBT (Kansas City Board of Trade), the historical center of livestock trading in the U.S.
Pork bellies are particularly interesting, in that the bacon produced from them generally has no substitute with a similar product. Also, their price is heavily dependent on the price of grain, since the hogs are fed mostly corn and a few others. Prices tend to be less volatile than many other commodities.
Since most traders invest in commodities futures or options, not the good itself, financial products are often listed on the same exchanges.
Along with purchasable U.S. Treasury Bonds futures traded on the CBOT and elsewhere, there are a few indexes that track stocks and others. The S&P 500 Index futures contract is a popularly traded item, for example.
Keep in mind that when you see prices quoted, some sites will list abbreviations for the expiration month of the futures contract. The list used is as follows:
January - F
February - G
March - H
April - J
May - K
June - M
July - N
August - Q
September - U
October - V
November - X
December - Z
Hence, you might see an item listed as PBH07, which is a Pork Belly contract which expires in March of 2007.