Overview
Soft commodities, often referred to as softs, are agricultural products that grow above ground. Unlike hard commodities such as oil or gold, softs are typically harvested. They play a crucial role in global agriculture and trade.
Key Concepts
The defining characteristic of soft commodities is their agricultural origin and above-ground growth. They are subject to weather patterns, crop yields, and seasonal variations, making their markets inherently volatile.
Major Soft Commodities
- Coffee
- Cocoa
- Sugar
- Cotton
- Orange Juice
- Wheat
- Corn
Deep Dive into Trading
Trading in soft commodities occurs on major exchanges like the Intercontinental Exchange (ICE) and the Chicago Mercantile Exchange (CME). Futures contracts are common, allowing investors to speculate on future prices or hedge against price fluctuations.
Applications
These commodities are fundamental to numerous industries. Coffee and cocoa are staples in the beverage and confectionery sectors. Cotton is vital for the textile industry, while sugar is a key ingredient in food and beverages. Grains like wheat and corn are essential for food security and animal feed.
Challenges & Misconceptions
A common misconception is that all agricultural products are soft commodities. However, root vegetables or products that grow underground are typically not classified as such. The markets can be complex, influenced by geopolitical events, trade policies, and disease outbreaks affecting crops.
FAQs
What distinguishes softs from other commodities?
Softs are agricultural products grown above ground, influenced by agricultural cycles and weather, unlike minerals or energy resources.
How are soft commodities traded?
They are primarily traded via futures contracts on specialized commodity exchanges.