Any good that is in demand and can be sold is called a commodity. There are two types of commodities. Soft and Hard. Soft Commodities are goods that are grown. Hard commodities are those which are extracted. Earlier these commodities were used for trading. Either Soft or Hard commodities explored has got an effort that is used for creating it. For example growing of corn has got certain labor associated with it. That effort is later converted into pricing using various regulatory rules. Before Money was born, commodity exchange was prominent.

Barter systems in the raw sense means exchange of labour. Exchanging commodities is as good as exchanging labour that is invested to produce/make those commodities. Different degrees of Hardships are endured to acquire the same. However these prices of commodities are fluctuating. So, it is hard to continue with the barter system. Money was invented and everything from then on was exchanged for money.

Commodities also serve as raw materials for other products, for example Iron ore. It is used to produce a lot other by products. Prices of various commodities vary according to the demand and supply of the same. If commodity produce is more than demand, the prices will be cheaper. If commodity Produce is less than demand, the prices will be dearer. Changes in the commodity prices effects other industries adversely. Supply of these commodities depends upon lot of conditions. One example is Agricultural commodities, the supply portion is directly proportional to the climate changes. A rough climate effects the crop adversely and commodity supply will be less, demand ( As always people need agri products for survival ) will continue to be constant there will be an increase in the price. Similarly a change in the Iron Ore deposit in the mines will affect the businesses which use iron ore as raw product.

Inorder to judge the price of any good, first you need to calculate its manufacturing value, As so far proven to work, the equation is as below.

 

C = SIGMA(A x (1+m+n) x (1+o+p+r+s)) + B

 

C – Commodity Manufacturing Value

A – Net Work price of each worker for the assignment ( Total time consumed , Previously Quoted Price vs time , Current labour Prices )

m – The coefficient of workers employed in non-economy; it is expressed by the proportion of the work price of all workers employed in non-economy and in economy on the territory of the commune.

n – The coefficient of workers employed in non-economy; it is expressed by the proportion of the work price of all workers employed in non-economy and in economy on the territory of the commune.

o, p, r, s are constant values which can be computed

B – The cash assets that are involved 

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The Commodity Manufacturing value is obviously less than the market price and there would be no point otherwise 🙂

Commodity Price Index is one of the important measures of inflation is the CPI. Each nation calculates the CPI and keeps a close watch on inflation.

Indian Statistics for 2006-2009 are available here. Commodity Channel Index measures the deviation the commodity prices from average historical pricing. Calculation of CCI is available here.  Commodity Research Bureau gives good information about trends and analysis of the Commodity Prices http://www.crbtrader.com/

From Wiki, Indices across the world.

Supply and Demand Effects the prices of commodities in the following manner

  • if Market is at the equilibrium price and Quantity (Intersection of supply and demand), majority of the sellers and buyers are satisfied ( cant say 100%)
  • Supply Constant, Demand is more then Demand curve takes a shift. Prices will be higher
  • Supply Constant, Demand has gone down, then Prices will come down
  • Demand is constant, Supply is more, Prices will come down
  • Demand is constant, Supply is less, Prices will be higher

 

References and Further Study :

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