The most popular physical commodities contracts cover several broad categories: metals, energy, grains, livestock, and food and fiber. There are some modern additions to commodity futures that are unique, such as chemicals and fertilizer futures, but the most popular contracts fit under the broad categories listed here. Commodities are mainly subject to price fluctuations based on supply and demand factors in consuming and producing countries.
The major metals futures contracts include copper, gold, platinum, palladium and silver. Their uses include industrial purposes, in construction, and for jewelry. Geopolitical and economic factors in the dominant producing and consuming countries affect price action, but each also has its own unique fundamental influences. In the copper market, building construction is the largest demand source. Copper is also used for electrical and electronic products, transportation and industrial machinery manufacturing. The price of copper is therefore sensitive to statistics related to economic growth, particularly reports such as housing starts. For that reason, participants in financial markets often also look to price action in copper futures as a gauge of general economic trends. In another example, gold has long been used as a hedge against political and economic uncertainties, and many central banks back their currency with gold reserves.
In the U.S., the metals listed here trade primarily on the New York Mercantile Exchange. CME Group also lists NYMEX contracts on its Globex electronic platform.
The most popular energy futures contracts are crude oil, RBOB gasoline, heating oil and natural gas. These natural resource markets have become one of the most important gauges of world economic and political developments, and are therefore heavily influenced by disruptions in producing nations. The value of the U.S. dollar is significant because much of the world’s crude oil is priced in dollars.
U.S. energy prices are quite sensitive to statistical reports detailing production, imports and especially stocks. All energy futures markets are subject to seasonal fluctuations – mild winter weather may lessen the need for heating oil, while summer tends to bring greater gasoline demand for driving season. Hurricane season in the United States impacts the energy markets as the storms can disrupt production and refining operations.
These products trade on the New York Mercantile Exchange. CME Group also lists NYMEX energy contracts on its electronic Globex platform.
Learn More About Energy
If you’d like to learn more about the crude oil markets, check out “Oil Market Basics,” a comprehensive online course brought to you by the U.S. Energy Information Administration. Learn about the supply and demand factors unique to this market as well as how to track trends. There are over 400 links to EIA data and other resources you need to make the most informed trading decisions.
Grains and soybeans are essential to food and feed supplies, and prices are especially sensitive to weather conditions in growing areas at key times during a crop’s development and to economic conditions that affect demand. Because corn is integral to the increasing popularity of ethanol fuel, the grain markets also are affected by the energy markets and outlook for fuel demand.
The major futures contracts in this category are corn, soybeans, soybean oil, soybean meal and wheat. Reports from the U.S. Department of Agriculture are closely watched, and summarize key factors influencing supply and demand including current production and carryover supply from the prior season. Each product has its own unique fundamental factors, depending on their use for human or animal consumption, or for industrial and energy needs.
These products are traded in the United States at the CME Group, Kansas City Board of Trade, and Minneapolis Grain Exchange.
Commodity futures on live cattle, feeder cattle, lean hogs and pork bellies are all traded at the CME Group. Their prices are affected by consumer demand, competing protein sources, price of feed, and factors that influence the number of animals born and sent to market, such as disease and weather.
Food and Fiber
The food and fiber category for futures trading includes cocoa, coffee, cotton, frozen concentrated orange juice (FCOJ) and sugar. In addition to global consumer demand, the usual growing factors such as disease, insects and drought affect prices for all of these commodities. FCOJ prices, however, are particularly sensitive to weather conditions. A frost or freeze in Florida or Brazil during the growing season can have a disastrous affect on both the current crop size and long-term production prospects. International exchange rates affect all of these global products, as well as factors like tariffs and geopolitical events in producing nations. These markets are traded at the New York Mercantile Exchange and ICE Futures U.S., formerly the New York Board of Trade.