An Introduction to Commodity Markets

Commodities are raw or primary products and the exchanges where these goods are traded are known as Commodity Markets.

Different markets trade different commodities. For example, the Winnipeg Commodity Exchange is Canada’s only agricultural futures and options exchange. Here, you will find investors trading in canola, wheat, barley and other agricultural products. Other commodities can be found in either the Toronto Stock Exchange, the Canadian Venture Exchange or the Montreal Exchange, depending on the type of commodity and the size of the company managing it. Internationally, commodities are available on almost every exchange.

When investing in any commodity, it is important to understand the unit that it is being traded in. For example, one unit of gold is one troy ounce; therefore, the price per unit is the price per ounce. Nickel, while still a metal, is bought and sold by the metric ton, as are most other industrial metals. Fuels such as crude oil, diesel and gasoline may be traded by the barrel or by the metric ton. Food items such as maize, wheat and soybeans may be sold by the pound, bushel, short ton, kilogram, short hundredweight, or even a set multiple of any of these units. Without understanding the unit price, an investor cannot comprehend the price they are actually paying for any given commodity.

Oil is the most traded commodity in the world, with coffee coming in second place. Because many commodities are mined or produced in various countries, more and more companies are seeking the Fair Trade designation. This allows an investor to choose to invest in commodities that are produced using fair wages for laborers, regulated working conditions, etc. Investors with a social conscience may use this designation as one of their criteria when investing in foreign commodities.

In Canada, commodity measurements are regulated and inspected by Measurement Canada, working within The Weights and Measures Act. This helps to ensure that investors can trust that the commodity they choose to invest in has been accurately weighed and measured. While commodities in Canada are produced for both domestic and foreign markets, some are regulated within this country to ensure a balance between supply and demand. This regulation of commodities such as poultry, eggs and dairy helps to ensure a safe return for investors.

Considering that more than half of Canada’s export trade is in commodities, market price fluctuations can easily affect the performance of the exchange as a whole.