Legal Definitions - commodity

A commodity is a basic good that is interchangeable with other goods of the same type, often serving as a raw material or primary agricultural product. These are tangible items that can be bought and sold, typically in large quantities, on organized markets. Unlike services, commodities are physical products whose value is largely determined by supply and demand, and they are generally undifferentiated, meaning one unit is essentially the same as another from a different producer.

• Example 1: Crude Oil

  Imagine an oil refinery that needs to purchase large volumes of crude oil to process into gasoline and other petroleum products. The refinery isn't concerned with which specific oil well the crude came from, as long as it meets the required specifications (e.g., West Texas Intermediate or Brent crude). A barrel of WTI crude from one supplier is considered identical to a barrel of WTI crude from another, making it a classic example of an energy commodity traded globally.

• Example 2: Wheat

  Consider a large baking company that requires tons of wheat flour daily for its bread production. The company buys wheat from agricultural markets, where the grain is standardized by grade and quality. A bushel of No. 2 hard red winter wheat from one farm is interchangeable with a bushel of the same grade from another farm, illustrating how wheat functions as an agricultural commodity bought and sold based on global supply and demand.

• Example 3: Copper

  An electronics manufacturer needs vast quantities of copper for wiring in its circuit boards and devices. Copper is a raw metal that is mined, refined, and then traded on international exchanges. A metric ton of high-grade copper from one mining company is considered equivalent to a metric ton from another, making it an industrial commodity whose price fluctuates based on global economic activity and demand.