What are commodities? The raw materials driving the global economy

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Adding commodities to your portfolio takes some sleuthing.

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Commodities such as copper, crude oil, natural gas, soybeans, and sugar are the raw ingredients that feed and power the global economy. Commodities are also an investment category, traded every day on markets worldwide, with implications for every individual and business.

You may never have set foot in a cornfield or worked on an oil-drilling rig, but as a consumer, you’re very much a part of the commodities market. Commodities and their prices are important parts everyday life, and they can also be part of an investment strategy. Even if you don’t invest in commodities, these markets are still worth following as indicators of market sentiment and economic health.

If you’re looking to add commodities to your portfolio, you have several options, including futures contracts andexchange-traded funds (ETFs). Commodities and commodity-based investments differ from traditional stocks and bonds in how they trade, the risks they carry, and the forces that influence their prices.

Commodities are typically raw or unprocessed materials, often mined or pumped out of the ground in the case of metals, crude oil, and natural gas, or grown on farms, such as corn, cotton, pork, soybeans, and wheat. For trading purposes, units of a given commodity are typically interchangeable, or fungible—one bushel of corn is considered pretty much the same as any other.

Many major commodities trade in the form of futures contracts on established exchanges, such as CME Group and Intercontinental Exchange (ICE), which are based in the U.S. (Commodity futures trading was effectively birthed at what became the Chicago Board of Trade, where grain merchants gathered starting about 1848 to buy and sell early versions of grain futures contracts.) Crude oil is currently the world’s most actively traded commodity, according to ICE, with futures contracts representing some 2.8 billion barrels changing hands daily.

Commodities generally fall into four main categories: energy, metals, agriculture, and livestock.

There are two broad types of commodities market participants:

As with stocks, exchanges play an important role in the commodities markets, providing a centralized, regulated venue where buyers and sellers conduct business. Most commodity futures that trade on exchanges are standardized agreements (contracts). Both parties agree to buy or sell a specific amount of a particular commodity at a predetermined price at a specific date in the future. For example, one crude oil futures contract specifies 1,000 barrels of West Texas Intermediate crude, the U.S. benchmark.

Weather and geopolitics are among the key forces that drive commodity prices. These factors are often difficult to predict and can make commodities extremely volatile. A drought or flood can slash harvests. A cold snap can raise heating fuel demand. A hurricane can disrupt oil production and shipping. For these reasons, commodities traders closely monitor weather forecasts and global events.

In 2022, global supply chains were disrupted caused in part by Russia’s invasion of Ukraine as the world emerged from the COVID-19 pandemic. The result was a surge in crude oil prices to multiyear highs. That increase rippled through energy markets, driving up prices for gasoline and diesel fuel.

Government trade policies can dramatically affect commodity prices and trading patterns. In 2018, during his first term, President Donald Trump imposed tariffs on steel (25%) and aluminum (10%), triggering price spikes in U.S. metals markets and disrupting established supply chains.

Agricultural markets also saw significant disruption when China imposed retaliatory tariffs on U.S. soybeans, sending prices down nearly 20% and redirecting global trade flows.

In his second administration, Trump expanded tariffs on critical minerals from China in early 2025. The move pushed up prices for battery metals such as lithium and cobalt, which boosted demand for U.S.–sourced materials and led buyers to seek alternative suppliers in Australia, Chile, and Canada.

Whether driven by weather, war, or trade policy, commodity markets often react quickly—and sometimes sharply—to changes in supply and demand.

For individual investors, there are several ways to gain exposure to commodities.

Futures contracts. A futures contract is an agreement to buy or sell a certain amount of a commodity at a certain price in the future. If the price of a futures contract rises, the buyer can sell it and book a profit. In contrast, the seller of a futures contract potentially profits if the price goes down (this is known as going short). Although most commodity futures technically allow for physical delivery, almost all contracts are liquidated before the contract’s expiration date. So you won’t receive a truckload of corn in your driveway.

Options on futures. Put or call options based on crude or gold, for example, are traded on many futures exchanges. These contracts grant the option buyer the right, but not the obligation, to buy or sell a specific futures contract at a specific price on or before an expiration date.

Exchange-traded funds (ETFs). ETFs are marketable securities that trade like common stocks and can be bought or sold on an exchange. Many ETFs are linked to a single commodity, a basket of commodities, or a commodity index.

Traditional stocks. Many publicly traded companies have direct exposure to commodities and commodities markets (miners, grain processors, and oil and gas exploration companies, for example) or indirect exposure (such as farm equipment manufacturers, seed companies, or oil field services companies).

Commodities can be considered “alternative” investments that are supposed to be uncorrelated, or minimally correlated, with stocks and bonds. If stocks make a big move lower or higher, alternative assets may move the opposite way, or they might move in the same direction, but to a lesser extent. This potential noncorrelation to stocks and bonds is one reason alternative investments can help diversify a portfolio.

Commodities markets are also prone to sharp, sudden price swings, with potential volatility that’s typically far greater than an S&P 500 stock. Commodities often move higher and lower in broad-based, multiyear cycles that reflect expansion or contraction in the global economy. But any cycle or price trend in commodities can end, seemingly in an eyeblink. The fast-moving and often volatile nature of these assets is not suitable for all investors.

We all consume commodities every day, whether by driving to work, drinking a cup of coffee, or buying clothes or supplies for home. Investing in commodities is another matter. Commodities offer a fascinating window into the global economy, and watching these markets can inform or offer ideas for an investing strategy or simply keep investors in the loop. But these unique assets carry unique risks, and anyone considering investing in them should proceed with care.