What are soft commodities and how can you trade them?
The commodity market can be split into two categories: hard and soft. Here, we explore soft commodities – natural products, such as wheat, cocoa, and palm oil. Learn how to trade soft commodities with us.
What are soft commodities?
Soft commodities are natural, cultivated products such as sugar, wheat, corn, palm oil, soybeans, livestock, and more. They are informally referred to as ‘softs’. The key feature of soft commodities is that they are grown (and nurtured or raised), not mined.
With soft commodities necessary for daily sustenance, their availability and lack thereof offer an opportunity for traders and investors to predict their future. This is because soft commodities face many risks that affect their delivery, such as irregular weather patterns and soil degradation – which cause uncertainty in the market.
More detailed examples of soft commodities follow in the table below.
Learn about commodities and how to trade them
Examples of soft commodities
| Sugar – New York No. 11 | The price of the Sugar No. 11 contract is used worldwide as the benchmark contract for raw sugar trading. The futures contracts are traded at the Intercontinental Exchange (ICE) and each contract size is 112,000 pounds. |
| Coffee – New York (Arabica) | The Coffee C futures contract is the world benchmark for Arabica coffee prices. The C market is a global commodity exchange where contract prices for physical green beans are traded from one of 20 countries’ licensed warehouses to one of several ports in the US and Europe, with stated premiums and discounts for ports and growths. |
| Cocoa – New York | The Cocoa contract is the world benchmark for the global cocoa market. The contract prices the physical delivery of exchange-grade product from a variety of African, Asian, Central and South American origins to any of five US delivery ports. |
| Wheat – Chicago | Wheat futures contracts are offered on the Chicago Board of Trade (CBOT) and serve as the industry standard for wheat prices. The CBOT wheat futures prices are quoted in dollars and cents per bushel and are traded in lot sizes of 5000 bushels (136 metric tonnes). |
| Corn | Corn futures are exchange-traded contracts on the CBOT where the price of corn is bought and sold at 5000 bushels per contract. This contract is considered the world benchmark for corn, which is commonly used for livestock and poultry feed. |
| Cotton | Cotton future contracts are traded mainly on the New York Mercantile Exchange (NYMEX) where you’ll find the benchmark for the price of cotton globally. The price of the contract is 50,000 pounds net weight, agreed upon by the buyer to take delivery, from the seller, on a specific date in the future. |
| FCPO | Crude Palm oil futures contracts are traded at Bursa Malaysia. The contract size is 25 metric tonnes and it’s used as the benchmark price worldwide for crude palm oil trading. The two largest palm oil producers and exporters are Indonesia and Malaysia. |
| Soybean Meal | The Soybean Meal contract trades at the CBOT and each futures contract is 100 short tons, or approximately 91 metric tonnes. The commodity is traded among merchandisers, importers, farmers that tend to livestock and food processors. |
| Sugar – London No. 5 | The White Sugar futures contract is used as the global benchmark for the pricing of physical white sugar. Listed as White Sugar No. 5, the soft commodity is traded on the ICE Futures Europe exchange in London. |
| Coffee – London (Robusta) | The futures for Robusta Coffee are traded on the ICE and the contract size is 10 metric tonnes. The largest producers of coffee are in Africa, Asia and South America. |
| Cocoa – London | London Cocoa futures serve as the global benchmark for the physical price of cocoa. The cocoa is traded on the ICE and each contract is settled on 10 metric tonnes. |
| Soybeans | Soybean futures contracts are traded on the CBOT. A standard contract size is for 5000 bushels while a mini soybean contract is worth 1000 bushels. |
| Soybean Oil | Soybean oil is traded at the CBOT, with each future contract size settled at 60,000 pounds (or 27 metric tonnes). Soybean oil is commonly used to produce cooking oils and margarine. |
| LB | Lumber futures are traded at the Chicago Mercantile Exchange (CME), with each contract size settled at 110,000 board feet or approximately 260 cubic meters. |
| Orange Juice | The frozen concentrated orange juice (FCOJ) is used as a benchmark for the price of orange juice. The futures contracts are settled at 15,000 pounds of concentrated orange juice. |
| Live Cattle | Live cattle future contracts are traded on the CME. The contract size settles at 40,000 pounds (or 18 metric tonnes) of live cattle. |
What are hard commodities?
Hard commodities are products that are mined, such as crude oil, gold, and copper. The standout feature of hard commodities is that they are found below the earth’s surface in certain geological regions. Examples include:
- Precious metals, like gold, silver, and platinum
- Base metals, including copper, zinc, lead, and nickel
- Energies, such as crude oil, heating oil, and natural gas
Learn how to trade or invest in gold, silver, and oil
Where are soft commodities traded?
Soft commodities are traded on some well-known exchanges, such as the ICE, the CBOT, and the Kansas Board of Trade (KCBT). However, you do not have to trade soft commodities directly on a formal exchange – you can trade them over the counter (OTC) with us. This means you can trade commodities listed on several exchanges, in one place.
When trading OTC, you can use a broker, like us, to execute your trades – which often means more opportunities, but it also has associated risks.
With us, you can choose to trade commodities on the spot, on our undated market, or via options and futures. Trading on the spot means your trade can be executed immediately, at the current market price. Options and futures enable you to trade soft commodities at a specific date and a specific price in the future.
Why trade soft commodity markets?
There are a number of reasons why people choose to trade soft commodity markets. First, it is important to understand that this specific sector is very volatile, as agricultural production is notoriously unpredictable. Traders who prefer high-risk markets, often choose soft commodities because their price fluctuations could present more trading opportunities.
However, its volatile nature also means soft commodities carry high risk. An unfavourable weather event – like heavy rains or a drought, for example – can cause havoc on soft commodities, causing drastic price changes in a short period of time. Furthermore, changes to import and export volumes can also directly affect soft commodity prices.
A more recent example of the volatile nature of soft commodities can be seen in the effect of the Ukraine-Russia war. Corn prices increased rapidly, partly due to the fact that Ukrainian corn crops were 54% smaller than in 2021 – restricting supply.1
Trading soft commodities on leverage only amplifies the risk. You should always take appropriate risk management steps when opening a position using derivatives.
How to trade soft commodities
- Research your preferred market
- Decide whether you want to trade
- Open an account or practise on a demo account
- Select your opportunity
- Set your position size and manage your risk
- Open and monitor your position
There are a few different ways to take a position on soft commodities with us.
Get exposure to soft commodities via CFD trading
You can trade soft commodities with us by opening a CFD* trading account to predict on the spot (cash) and futures prices of the asset. You will enter into a contract to exchange the difference in the price of an asset from the point at which it is opened to when it is closed.
CFDs can be used for leveraged trading, which means you will have to put down a fraction of the full position size as your deposit to get exposure. Note that leverage magnifies both profits and losses, as these are calculated based on the full position size, not the deposit. You will need to take suitable steps to manage your risk carefully.
Learn more about trading vs investing
*CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.
Soft commodities summed up
- Soft commodities are natural, agricultural products that are cultivated and grown but not mined, such as sugar, wheat, corn, palm oil, soybeans, livestock, and more
- There are two types of commodities, soft commodities that are nurtured and hard commodities that are extracted from the ground
- Soft commodities are traded on well-established exchanges, but not directly. You can trade them OTC with us
- People trade soft commodities because the market is volatile, and it offers an opportunity to predict the price direction
- You can get exposure to soft commodities by trading using CFDs
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