Commodities fall broadly into two categories: hard and soft commodities. 

• Hard commodities: These are natural resources extracted from the earth such as precious metals (gold and silver), base metals such as copper and aluminium, plus energy products, such as oil and natural gas. 
• Soft commodities: Soft commodities (often described as “softs”) are broadly comprised of livestock and agricultural products. Livestock can include pork or live cattle. Agricultural (or “ags”) can include wheat, cocoa, sugar and soybeans.

Supply and demand: All markets are driven by the dynamics of supply and demand for the asset being bought and sold. In commodity markets, however, this is even more pronounced. A significant rise (or fall) in demand for any particular commodity will likely give rise to a notable rise (or fall) in the price for the commodity. Conversely, changes to the supply dynamics for a commodity will do the reverse.

The US Dollar: Most commodities are quoted and traded in US Dollars. This means that changes in the value of the US Dollar against other currencies can impact the price of commodities. Generally speaking (though this relationship can shift), there is an inverse correlation between the value of the US Dollar and the price level of commodities.

Global economic conditions: The health of the global economy can have a significant impact on the overall demand for, and supply of, various commodities – therefore impacting the price.

There are now more than 50 global commodity exchanges trading in over 100 commodity types. These exchanges offer futures contracts primarily, with commodities as the underlying asset. 

• The Chicago Board of Trade (CBoT) has been in existence since 1848 and offers trading in soybeans, wheat and corn, amongst many others.
• The Chicago Mercantile Exchange (CME) facilitates trading in lean hogs, cattle and lumber, with many other markets also listed to trade.
• The New York Mercantile Exchange (NYMEX) sees trading in gold, silver and other precious metals plus many others.
• The London Metals Exchange (LME) sees trading in base metals, including copper, aluminium, lead and zinc.
• The Tokyo Commodity Exchange (TOCOM) allows for trading in a wide variety of commodities.