Soft commodities, or softs, are

commodities In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a co ...

such as

coffee Coffee is a drink prepared from roasted coffee beans. Darkly colored, bitter, and slightly acidic, coffee has a stimulating effect on humans, primarily due to its caffeine content. It is the most popular hot drink in the world. Seeds of ...

cocoa Cocoa may refer to: Chocolate * Chocolate * ''Theobroma cacao'', the cocoa tree * Cocoa bean, seed of ''Theobroma cacao'' * Chocolate liquor, or cocoa liquor, pure, liquid chocolate extracted from the cocoa bean, including both cocoa butter an ...

sugar Sugar is the generic name for sweet-tasting, soluble carbohydrates, many of which are used in food. Simple sugars, also called monosaccharides, include glucose, fructose, and galactose. Compound sugars, also called disaccharides or do ...

corn Maize ( ; ''Zea mays'' subsp. ''mays'', from es, maíz after tnq, mahiz), also known as corn (North American and Australian English), is a cereal grain first domesticated by indigenous peoples in southern Mexico about 10,000 years ago. The ...

wheat Wheat is a grass widely cultivated for its seed, a cereal grain that is a worldwide staple food. The many species of wheat together make up the genus ''Triticum'' ; the most widely grown is common wheat (''T. aestivum''). The archaeologi ...

soybean The soybean, soy bean, or soya bean (''Glycine max'') is a species of legume native to East Asia, widely grown for its edible bean, which has numerous uses. Traditional unfermented food uses of soybeans include soy milk, from which tofu ...

fruit In botany, a fruit is the seed-bearing structure in flowering plants that is formed from the ovary after flowering. Fruits are the means by which flowering plants (also known as angiosperms) disseminate their seeds. Edible fruits in partic ...

and

livestock Livestock are the domesticated animals raised in an agricultural setting to provide labor and produce diversified products for consumption such as meat, eggs, milk, fur, leather, and wool. The term is sometimes used to refer solely to ani ...

.Patrick Maul, ''Investing in Commodities'', diplom.de, 2011, p
8
table c. The term generally refers to

that are grown, rather than mined; the latter (such as oil, copper and gold) are known as hard commodities. Soft commodities play a major part in the

futures market A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or ...

. They are used by

farmer A farmer is a person engaged in agriculture, raising living organisms for food or raw materials. The term usually applies to people who do some combination of raising field crops, orchards, vineyards, poultry, or other livestock. A farmer m ...

s wishing to lock-in the future prices of their

crop A crop is a plant that can be grown and harvested extensively for profit or subsistence. When the plants of the same kind are cultivated at one place on a large scale, it is called a crop. Most crops are cultivated in agriculture or hydropon ...

s, by commercial purchasers of the products, and by speculative investors seeking a profit. Sometimes the term ''soft'' is restricted to commodities which are identified as primarily tropical, such as coffee, cocoa, sugar, cotton, and orange juice. Soft commodities have been known to adopt a

backwardation Normal backwardation, also sometimes called backwardation, is the market condition where the price of a commodity's forward or futures contract is trading below the ''expected'' spot price at contract maturity. The resulting futures or forward ...

trend until the late 1990s when futures were actively traded. Speculation and investment requirements later shaped the common

contango Contango is a situation where the futures price (or forward price) of a commodity is higher than the ''expected'' spot price of the contract at maturity. In a contango situation, arbitrageurs or speculators are "willing to pay more owfor a co ...

trend.

References

* {{finance-stub

See also

References