Commodities

Soft Commodities

Gayathri G | Updated on January 20, 2018

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Also called softs, the term generally refers to commodities that are grown, rather than mined (hard commodities). For instance, tropical commodities such as coffee, cocoa, sugar, orange juice, lumber.

These are assets that have more than one utility - they’re not just instruments to be traded in the market. The resources are items with characteristics that remain unchanged across the market and can, therefore, be traded on a commodity market in a similar manner as equities and currencies are transacted.

While the value of hard commodities can be impacted by climatic occurrences, the soft commodities sustain the biggest fluctuations when agricultural variables shift. Seasonal changes may impact hard commodities by prompting a drop in their demand, while benefitting soft commodities. And, hence, soft commodities may show more fluctuations in price.

Soft commodities play a major part in the futures market. They are used both by farmers wishing to lock-in the future prices of their crops and by speculative investors seeking a profit. Softs offer many advantages such as the vast quantity of commodities to be traded. A speculator could trade sugar, cotton, cocoa, barley, durum, soyabeans, live cattle, corn, hog, orange juice, lumber and much more.

Intercontinental Exchange or ICE US is the hub of global trading in soft commodities. Following its acquisition of NYSE Euronext in 2013, ICE Futures Europe now trades London softs markets, including cocoa, Robusta coffee and white sugar. ICE Futures Canada lists the leading canola futures contract, an increasingly popular oilseed.

Published on March 30, 2016

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