Basics of the Commodity Market
Commodities are raw materials or primary goods that are traded globally, such as metals, energy, and agricultural products. In Australia, commodities play a major role in both exports and investment markets. Trading takes place through commodity exchanges like the ASX and global markets like the CME. Most investors access commodities through futures contracts, ETFs, or managed funds rather than physical ownership.
Trading takes place through commodity exchanges like the ASX and global markets like the CME. Most investors access commodities through futures contracts, ETFs, or managed funds rather than physical ownership.
Soft Commodities
Soft commodities refer to agricultural goods that are grown rather than mined. Examples include wheat, coffee, sugar, cotton, and livestock.
Prices for these commodities are often influenced by weather patterns, seasonal yields, and global consumption trends. Australia’s key soft commodities include wheat, barley, and beef. All of which major export earners.
Hard Commodities
Hard commodities are natural resources extracted from the earth such as gold, iron ore, oil, coal, and copper. Australia is one of the world’s largest exporters of hard commodities, especially iron ore and coal.
Their prices are typically affected by mining output, industrial demand, energy prices, and geopolitical developments.
Risks in Commodity Trading
Commodity prices are highly volatile. Weather, global politics, supply chain issues, and currency movements can all impact returns. Leverage, common in futures trading, can amplify both profits and losses. New investors should start with diversified exposure (such as ETFs) and avoid overconcentration in a single commodity.
Commodity Pricing & Futures Explained
Most commodity trading occurs via futures contracts — agreements to buy or sell a specific quantity of a commodity at a future date. Futures markets set benchmark prices that influence spot markets.
For example, oil and wheat futures traded on global exchanges reflect market expectations for future supply and demand. Understanding how these contracts work is key to managing price risk and interpreting market movements.
Commodities in the Australian Economy
Commodities are central to Australia’s economy accounting for a large share of exports and national income. Iron ore, coal, LNG, gold, and agricultural products dominate export earnings.
When global demand for these goods rises, the Australian dollar and resource stocks often strengthen. Conversely, downturns in commodity prices can slow economic growth and weigh on the ASX.