A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. A commodity has full or partial fungibility; that is, the market treats it as equivalent or nearly so no matter who produces it. Examples are petroleum and copper. The price of copper is universal, and fluctuates daily based on global supply and demand.
Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.
In general, based on my studies and observations, major commodities have experienced a very good bull run in 2010, and even up til now. A lot of people are asking... is there going to be a correction soon for commodities? Is there a bubble growing?
I believe that commodities, are just like any other form of asset investments, which is ultimately driven by supply and demand. Commodities - cover a wide range of items and products, including the precious metals such as copper, gold, silver etc, cocoa, corn, wheat, sugar, lumber, and even cattle - of course, lets not forget CRUDE OIL. =)
The recent focus on biofuels have resulted in a strong and steady demand for crops such as corn - yes, the jagung, or palm oil and so on - these are a good source or raw material for biofuels. If you look at crude oil, it is hovering just below USD100 per barrel currently, and I believe that the price will continue to steadily move up in 2011.
Further increase in commodities' prices are also driven by economic growth. Lets not talk about our own ETP and so on - lets just look at China. China's economy is facing such a tremendous boom that their internal supply may not be enough to cater to their internal demands, hence affecting the world commodity prices.
In my opinion, commodites are a good hedge against major risks - buy GOLD, somehow one can never go wrong with gold. Other commodities are also in favour; with the current unrest in some Middle Eastern countries, I would expect oil prices to continue to rise in the coming months. Big changes in weather around the world, in particular China and various parts of Europe (floods and draughts) would be boosting agricultural commodities prices.
Just remember this - while equities are very volatile, commodities would be a safe bet. =P
