What Are Soft Commodities?

What Are Soft Commodities?

Soft Commodities are sugar, wheat, corn, palm oil, soybeans, and livestock all essentials to our daily sustenance.
Although these commodities originate from fertile soil or grazed pastures, their significance extends beyond the kitchen. As a pillar of the commodities market, soft commodities influence the investment and trading environment. The term'softs', a colloquial term for these commodities, conceal their profound impact on global trade and investment strategies.

The voyage of soft commodities from the farm to the market is fraught with risks and uncertainties. For instance, the unpredictability of weather patterns, the deterioration of soil, and the fickle character of agricultural commodities all contribute to the volatility of these commodities. However, as a seasoned investor, you understand that with risk often comes opportunity. The inherent uncertainty that characterizes the trajectory of these commodities results in fluctuating prices, allowing merchants and investors to speculate on their future value.

Soft commodities represent some of the oldest futures contracts, as they are deeply ingrained in trading customs. From ancient markets to today's high-speed digital transactions, agricultural commodities such as soybeans, cocoa, coffee, cotton, sugar, maize, wheat, and various types of livestock have always been the backbone of commerce. In recognition of their tropical origins and use in the production of sustenance and fiber, they are sometimes referred to as tropical commodities.

The futures market owes a significant portion of its vitality to the vital function that soft commodities play. These commodities are both a safety net for producers seeking to secure future crop prices and a profit-seeking playground for speculative investors. The dynamic ballet of values determined by variables such as weather forecasts and seeding or harvesting reports causes significant price fluctuations in grains and oilseeds. Consequently, this volatility affects the value of futures contracts based on delivery dates, keeping traders and investors on their toes.

Thus, soft commodities, sustained by the earth and shaped by human hands, remain the commodities market's lifeblood. They bridge the divide between the agricultural world and high-stakes trading floors, symbolizing the fluid exchange between nature's bounty and economic speculation.

1. Sugar No. 11: This is the world standard for raw sugar trading. The futures contracts are exchanged on the Intercontinental Exchange (ICE), and the contract size is pegged at 112,000 pounds.

2. Coffee C (Arabica): This is the benchmark for Arabica coffee prices. It represents trading of physical green beans from warehouses in 20 different countries to various ports in the US and Europe, with specified premiums and discounts.

3. Cocoa: The Cocoa contract serves as the global benchmark for the worldwide cocoa market. This contract prices physical delivery from origins in Africa, Asia, Central, and South America to any of five US delivery ports.

4. Wheat: Wheat futures contracts, traded on the Chicago Board of Trade (CBOT), form the industry standard for wheat prices. Each contract represents 5000 bushels, or 136 metric tonnes.

5. Corn: Corn futures are exchanged on the CBOT. Each contract represents 5000 bushels, and these contracts form the world standard for corn prices.

6. Cotton: Cotton futures contracts are primarily traded on the New York Mercantile Exchange (NYMEX), the global benchmark for cotton prices. Each contract is for 50,000 pounds net weight.

7. Crude Palm Oil: Crude Palm oil futures are traded on Bursa Malaysia. The contract size is 25 metric tonnes and is the benchmark price worldwide for crude palm oil trading.

8. Soybean Meal: This commodity is traded on the CBOT, with each futures contract representing 100 short tons, or approximately 91 metric tonnes.

9. Sugar No. 5: The White Sugar futures contract serves as the global benchmark for the pricing of physical white sugar. The soft commodity is traded on the ICE Futures Europe exchange in London.

10. Coffee (Robusta): Futures for Robusta Coffee are traded on the ICE. The contract size is 10 metric tonnes.

11. London Cocoa: London Cocoa futures form the global benchmark for the physical price of cocoa. Each contract is settled on 10 metric tonnes.

12. Soybeans: Soybean futures contracts are traded on the CBOT, with a standard contract size of 5000 bushels.

13. Soybean Oil: Soybean oil is traded on the CBOT, with each futures contract size settled at 60,000 pounds, or 27 metric tonnes.

14. Lumber: Lumber futures are traded at the Chicago Mercantile Exchange (CME), with each contract size settled at 110,000 board feet or approximately 260 cubic meters.

15. Frozen Concentrated Orange Juice: This commodity serves as a benchmark for the price of orange juice, with futures contracts settled at 15,000 pounds of concentrated orange juice.

16. Lean Hogs: Lean Hog futures are traded on the CME. The contract size settles at 40,000 pounds (or 18 metric tonnes) of lean hogs.

17. Live Cattle: Live cattle future contracts are traded on the CME. The contract size settles at 40,000 pounds (or 18 metric tonnes) of live cattle.

18. Oats: Oats futures are exchange-traded contracts where the contract size is 5000 bushels or 86 metric tons. The benchmark price for oats is determined at the CBOT.

19. Rough Rice: Rough Rice futures contracts are traded on the CME where agreements are made for the size of 2000 hundredweights, or about 91 metric tonnes of rough rice.

20. UK Feed Wheat: The UK Feed Wheat futures contract is recognized as the European benchmark for the pricing of physical feed wheat. It is actively traded on the ICE Futures Europe exchange in London.