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Commodity Types
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.
Energies
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.
Grains
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.
Softs
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.
Meats
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.
Financials
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, listed by quarter:
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.
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