Soft Commodities

Submitted by Jim Thesiger on 5 November, 2010 - 16:24

Soft commodities are usually those commodities that are grown instead of being mined. Commodities like coffee, corn, cocoa, cotton, orange juice, soybean, sugar and wheat are considered as soft commodity.

The basic difference between the soft and hard commodities is that, like it was mentioned at the very beginning, soft commodities are grown while on the other hand the “hard” commodities like metals and chemicals are usually mined.

Soft Commodities and the Futures Market

A large futures market has got established based on the soft commodities which involve both the investors and farmers. The farmers usually try to lock-in the future price for the crops they grow while the speculative investors enter the market in search of profit. The market is usually dictated by issues like seasonality, weather condition and reports of disruption. Supply and demand also plays a major role in this market.

Possible Risks

Just like other markets, the futures market for the soft commodities is also not free of risks. Some of the basic risk factors of this market include: movement of the currency, weather and Government intervention. It is important for the traders to keep in mind that this market can be very volatile time to time. So traders need to be really cautious about the market environment and should use proper judgment to make decisions.

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