A commodity is a basic good used in commerce as an input in the production of services or goods. Little, if any, differentiation exists among commodities, which are merely taken from their natural state and, if necessary, brought up to meet minimum marketplace standards. No value is added to the commodity, and all commodities of the same good sell at the same price.
A product, on the other hand, can be differentiated and value can be added by the manufacturer and through branding and marketing. Products are made using commodities.
Conventional examples of commodities include copper, crude oil, wheat, coffee beans and gold. Newer commodities include foreign currencies, cellphone minutes and bandwidth. Commodities are traded on exchanges primarily in the form of futures, which are contracts to buy or sell the commodity by a specified time in the future at a certain price. It’s worth noting that commodities trading has the potential to experience significant market volatility. (For further reading, see Commodities Trading: An Overview)
Typically, products are classified as either a durable or consumable good. Durable consumer goods, such as appliances, furnishings and jewelry, are generally long-lasting and purchased infrequently. Consumable goods, which include gas, groceries and tobacco products, are used quickly or need frequent replacement.
It’s important to note that while some commodities are consumables, not all consumables are commodities.
While consumables are often the product synthesized from commodities and not the other way around, commodities such as gold eventually become durable goods such as jewelry.
Another kind of commodity, the “soft” commodity, is one that cannot be stored for extended periods. Sugar, coffee, cocoa and cotton are examples of soft commodities. Consumables, also known as expendable property, consumable goods or soft goods, are meant to be used up, are not reusable and are replaceable. They fall into non-edible and edible categories, and the latter category finds consumables occasionally mistaken for soft commodities.
Toiletries and other items meant for personal maintenance, such as paper products, household cleaning products, air fresheners, insect repellent and rubber gloves, are examples of non-edible consumables. Items intended for care of automobiles and other types of machinery are examples non-edible consumables.
Conversely, packaged foods and many of their ingredients are edible consumables. Other consumables such as wine, beer and liquor may only be included in a consumable shipment if they are sent by surface to a country that does not have import restrictions.
Products are also traded and are found in many investment portfolios. Companies that produce consumable goods are generally considered safe investments based on their relative stability and historical performance. Since people still need to purchase basic goods even in a faltering economy, the demand for consumables remains strong through economic or market fluctuations. Despite their stability, consumable goods are sensitive to competition and to changes in the prices of the commodities used to make the consumable goods.