Don’t believe everything you hear about trading commodities.
Just as there are urban legends in the public sphere, there are certain falsehoods that perpetuate in the financial sphere.
One common one? That coffee is the second-most traded commodity.
While it sounds like a nifty and believable enough little factoid, there’s one problem: it’s not true.
Yes, coffee is a commodity — and an important one at that. Some people might even go so far as to say it’s vital to daily life! But in terms of moving the market, it actually lives a lot lower down on the list of top-traded commodities … It’s not even in the top 10!
Want to learn more? Let’s explore coffee’s popularity as a commodity … and talk about some of the actual most-traded commodities in the world!
First things first: what are commodities?
Simply put, they’re raw materials. These are things that are used as a component for other production. Think: basic goods like gold, grain, and oil.
Commodities, unlike stocks, don’t depend on a single company or sector — instead, they represent these raw materials or products.
However, like stocks, the value of a commodity can rise or fall based on various things like the market conditions, supply and demand, and the global economy. These price fluctuations are what make them appealing to traders and investors.
There are two primary categories of commodities: hard and soft.
Hard commodities means commodities that are mined or extracted — for example, precious metals and energy-related materials such as coal, gas, and oil.
Soft commodities means commodities that are living or agricultural products — for example, crops like cotton, soybeans, grains, and of course, coffee; it could also include animal products including live cattle and animal products such as hides and meat.
Want to learn more about commodities? Check out this post.
Coffee is a commodity because it’s an agricultural product.
However, it’s a unique commodity in that it represents both a raw material and a retail product. Let’s take a moment to discuss the difference.
With coffee, the line can be fine. For instance, either green or roasted coffee could be a commodity AND a product — but a bottle of cold brew coffee would firmly fall into “product” territory.
The myth of coffee as the second-most traded commodity likely roots back to 2017, when the U.S. Senate Foreign Relations Committee invited Kelly Goodejohn, a Starbucks employee, to dish on the coffee trade.
According to Politifact, in her presentation, she famously said “Coffee is the second-most traded commodity after oil, and 25 million farmers around the world rely on income generated from growing coffee.”
Unfortunately, it’s not quite true.
It’s possible that this metric makes more sense if coffee is viewed in terms of its level of market liquidity, but it’s still hard to place coffee at #2 globally.
Nonetheless, coffee is still an important and popular commodity.
Now you’re probably wondering … If coffee isn’t the second-most traded commodity, what is? And what’s #1, while we’re at it?
As of 2019, some of the top commodities in the U.S. were reported as being Crude Oil, Natural Gas, and Heating Oil.
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