Characteristics of Commodity Markets

In addition to donating to the Norman Lutheran Church and ILT.org, a non-ELCA seminary, Ray Grabanski is the president of Progressive Ag. Progressive Ag is a premier commodities marketing firm in the United States that deals primarily with agricultural commodities. Ray Grabanski has many years’ experience in commodity markets.

Commodity trading has grown over the years with investors and marketers seeking to make gains through strategic buying and selling. Today, commodity trading has a number of unique characteristics.

An important characteristic of commodity trading is that it requires agreed-upon standards. Commodities are usually traded without visual inspection. An investor in the United States can purchase livestock in another country without visual inspection, but with agreed-upon standards, assurance is given to the purchaser that the commodities are in good health or of high quality.

Commodity trading is also very dependent on global trends in industrialization, legislation, technology, and politics. For example, the emergence of China as an economic powerhouse in Asia has led to a reduction in available hard commodities such as steel for other countries. Similarly, China’s tightened legislative controls with regard to corn imports from the United States have significantly flooded the global market with US corn.

The economic forces of supply and demand also play a vital role in commodities trading. Lower supply leads to higher prices while a higher supply brings down commodity prices. Therefore, major disruptions such as extreme weather which reduces crop yield can send the price of agricultural commodities up.