What are the Different Types of Commodities?
Commodities are one of the most diverse asset classes and can be categorised in a variety of ways. In our market guide, discover the different types of commodities traded and diversify your portfolio strategically.
From oil and gas to gasoline and other raw materials, to coffee, meat and gold, you're likely to interact with many different commodities in everyday life. But as a trader, knowing the types of commodity markets available - over 100 with Tradu - and what drives them can help you to spot new opportunities.
Types of Tradable Commodities
There is a wide range of commodities available to buy and sell on commodity exchanges like the Chicago Mercantile Exchange or speculate on using futures contracts and other derivatives. You can also trade stocks in companies involved in commodity industries. Read more in our guide: How to trade commodities.
Whatever your approach, commodities are commonly sorted into three broad categories based on their natural characteristics and end use: agricultural, energy and metals. Read about the popular sub-types within these categories and what drives their price movements below.
Types of agricultural commodities
Agricultural commodities are crops and animals either grown or raised on farmland. Most help to feed humans and livestock though some provide alternative purposes, such as manufacturing clothes. You may see livestock and meat commodities categorised separately from other agricultural goods as they're reared instead of harvested.
Pricing in this category is heavily influenced by weather and fluctuating supply and demand through the different seasons. Dietary trends, production issues and population growth can also play their parts.
We've shone a light on some of the most popular types of agricultural commodities below. Other commonly traded examples include corn, soybeans and wheat.
Coffee
Coffee fuels the productivity and social activities of billions of people around the world, with the average person consuming 42.6 litres of it each year. It's no surprise, then, that coffee is among the most highly traded commodities.
Over 50 countries are involved in growing coffee beans but Brazil dominates the market. There are two main varieties: arabica and robusta. The former tends to be more popular thanks to its higher quality, as well as more stable in terms of pricing.
Key price drivers are climate and weather events, which can heavily impact both the production and characteristics of the final product.
Sugar
Sugar helps to sweeten food and drinks all over the globe. It has lesser-known uses, too, including beauty and cleaning products, medication and bioplastics. Over 100 countries produce sugar, with Brazil leading the way again.
Global consumption is predicted to exceed 178 million metric tonnes in 2022/23 but, despite its widespread availability and prevalence, it's still considered something of a luxury good, meaning that pricing can fluctuate in line with economic performance. Weather patterns, health concerns and state funding for growers are all key drivers, too.
Cocoa
Cocoa is primarily used to produce chocolate, making it another immensely popular type of food commodity. Its production is concentrated in West African nations including the Ivory Coast, Ghana and Nigeria.
Factors that move cocoa prices include weather conditions, labour issues and geopolitics. It's also one of few major commodities typically priced in British pounds, making it vulnerable to exchange rate fluctuation.
Cotton
Strong, light and absorbent, cotton is one of the most used fibres in the world, commonly in clothing and household items. It's harvested from the cotton plant in warm, semi-tropical climates such as China and India.
Just like the other agricultural commodities, cotton pricing is vulnerable to weather patterns and events. It can also be influenced by prices of competing textiles such as wool and polyester.
Types of energy commodities
Energy commodities keep our global economy and activities ticking over. They're used to heat and power our homes, businesses and devices, as well as to transport people and goods across the world.
Broadly speaking, energy commodity pricing is driven by basic factors such as seasonal demand and access to future supply. The societal and technological push towards lower-polluting energy sources is also important to monitor.
Read about the most traded types of energy commodities - crude oil, natural gas, and gasoline - below. Other examples include coal, electricity, ethanol, solar and geothermal.
Crude oil
Oil is widely used to for heating, transport and producing products; in fact, it's the most consumed energy fuel and demand is growing. There are two main types of oil commodities: Brent Crude Oil and West Texas Intermediary (WTI) Crude Oil. They are commonly used as benchmarks for global oil prices and economic health.
- Brent Crude oil is extracted from the North Sea.
- WTI Crude oil is drilled throughout the US. It's commonly described as lighter (lower density) and sweeter (lower sulphur content) than Brent Crude oil.
Natural gas
Natural gas is also extracted from deep below the earth's surface and meets many of the same needs as oil. It's the third-most used energy form behind oil and coal. While still a fossil fuel, combustion of natural gas emits 30% less carbon dioxide and fewer pollutants than oil per unit of energy.
Natural gas prices are influenced by similar factors as oil, including global demand in line with economic performance, stored reserves and development of alternative power.
Types of metal commodities
Metal commodities offer a further wealth of trading options. The category includes precious metals that are rare and have inherent value, key types being gold, silver, platinum and palladium. Base metals, meanwhile, include copper, nickel and lead; they're more common and are used in construction and to make products or alloys.
Precious metals are commonly used to make jewellery as well as being types of investment commodities in their own right. They're often used as a hedge against inflation or currency devaluation.
Key factors affecting metal commodities include economic uncertainty driving demand for precious metals, and industrial output driving demand for all types.
Read about three popular types of tradable metal commodities below.
Gold
Gold is a precious metal mined across the globe. It's commonly used for jewellery, decorative purposes and conduction in electrical devices. Gold is also seen as a safe haven asset in times of economic uncertainty, shown by a record price surge in the early months of the Covid-19 pandemic.
Key influences on its pricing therefore include financial and political instability. Other factors are global mining production, interest rates and performance of the US dollar. The price of gold rises when the latter two fall.
Silver
Silver is the second-most coveted precious metal and also used for jewellery and investment. Thanks to its highly conductive, anti-bacterial and malleable characteristics, other applications include electrical devices, dentistry and water purification.
Silver has similar price movers to gold including economic and societal unrest, inflation and the US dollar. Demand for other metals such as copper can also move the market.
Copper
Copper's value is driven less by investment and more by widespread use in electronics and construction. Chile is the top producer, accounting for 29% of global production; Peru and China also contribute significant volumes.
Its importance in manufacturing and building means that copper pricing is heavily driven by economic output. Demand increases in times of prosperity and vice versa. Emerging markets with high need for housing and transport infrastructure can play a key role, as do supply disruptions in copper-producing regions.
Hard vs soft commodities
You may also see the different types of commodities traded categorised as hard or soft. These broader categories work like this:
categories work like this:
- Hard commodities are natural resources that have to be mined or extracted from the earth, like energies and metals. Due to their widespread use for economic output, they're closely linked to domestic and global economic health.
- Soft commodities are agricultural products or livestock that have to be grown or reared, like coffee and pork. As detailed above, these commodities rely heavily on environmental conditions.
Get to grips with more common terms like these in our trading glossary.
Trade a range of popular commodity markets via CFDs with Tradu
With so many types of commodity markets available, this asset class is among the most diverse and interesting for traders. It also presents valuable opportunities for portfolio diversification. Ultimately, the right types for you will depend on your objectives and trading preferences, such as risk tolerance.
Broaden your knowledge with our other in-depth commodity trading guides