Commodity markets are markets where raw or unfinished
products are exchanged. These raw commodities are dealt on regulated commodities
exchanges in which they are purchased and sold as per the standardized
contracts.
This article emphasizes on the past and current arguments
regarding global commodity markets. It covers physical products such as food,
metals, electricity but not particularly about those services, including the
stock markets, bond markets and currency markets that need to be addressed
separately as issues in more depth.
The focus of this article is more on the relationship
between money involved with simple commodities and the more complex instruments
that are offered in the commodity markets.
The modern commodity markets have their traditional roots in
the trading of agricultural products. Wheat, corn, cattle and pigs were widely
used as standard trading instruments in the 19th century in the USA.
Other basic food materials such as soybeans were added only recently in most
markets.
For a commodity market to be established there must be a
broad consensus on the variety in the product that make it acceptable for different
purposes.
The economic impact in the development of the commodity
markets is hard to overestimate. Throughout the 19th century, the
exchanges became effective spokesmen for and innovators of improvements in the
transport system, warehousing and financing which paved the way to expand the
international trade.
Since the ancient Sumerian use of sheep or goats, people
used pigs, rare seashells or other various items as commodity money, people
have found different ways to standardize and then trade contracts in deliveries
of such items to render trade to make it smooth and predictable.
Commodity money and the commodity markets in a crude early
from are believed to have been originated in Sumer where small
baked clay tokens in shapes of sheep, goats, were used in different forms
of trade.
Sealed in various clay vessels a number was written outside
that represented a promise to deliver that particular number. This made them a
form of commodity money. – More than a I.O.U but less than a guarantee of
the total number that was outside but more than an I.O.U. but less than a
guarantee by a nation-state or bank. However, they were also known to contain
promises of time and date of delivery - this made them like a modern futures
contract. Regardless of the details, it was only possible to verify the number
of tokens inside by shaking the vessel or by breaking it, at which point the
number or terms written on the outside became subject to doubt.
