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Trading CFDs involves a significant risk of loss that may not be suitable for all investors. Please ensure you fully understand the risks and take appropriate care to manage your exposure.

The Difference between a Commodity and a Product

What is a Commodity ?

A commodity can be described as a basic good that’s used as an input especially in the production of goods and services. Examples could include:

  • coffee
  • cotton
  • corn
  • copper
  • crude oil
  • wheat
  • biofuels
  • sugar

Contemporary time commodities could include foreign currencies, bandwidth and surprisingly cell phone minutes. Most of the time, commodities tend to be raw materials. They are traded only in the futures market since all units are the same. They cannot be differentiated since they are equal to each other while still in this basic form. An illustration could be given of a commodity like silver. All metals that are silver cannot be differentiated as they are all equal. But items made out of silver can be differentiated either by brand, appearance, and quality. Thus, we can deduce that the price of commodities are equal across the globe since they are equal and cannot be differentiated.This is what many circles call as being fungible. You can basically interchange two kilograms of silver with another two kilograms of silver that has been mined in a totally different locality. You can substitute a bushel of corn grown in the USA with one bushel of corn grown in Africa. The identity of these commodities will not change and cannot be kept separate.The people who produce commodities are popularly known as price takers. This is because they have no control over the price that the commodity will have. They inevitably have to take the price that the market has offered them. An example could be given of a coffee farmer. He/ she has no influence over the market price of coffee since all coffee in the world is the same. Any coffee buyer would not care which farmer’s coffee they will buy since they are practically the same.

What is a Product ?

On the other hand, a product can be described as anything that has been added value either through manufacturing, processing, marketing, and even branding. They can be differentiated in the aspects of look, feel, quality and packaging. An illustration could be given of wheat which is a commodity. In its basic form, it cannot be differentiated. However, when it has undergone processing, milling, and manufacturing, it ends up in various forms such as flour, pastry products, cakes, bread and other items that have wheat as their basic ingredient. Thus, the final output of these processes is the product. These products vary in price since they can be differentiated. They also can be added more value depending on the demands of the consumers. This value also varies depending on the technology and methods of production used. They also can be sold under different brands. Products are classified as either durable or consumable. Durable products are long lasting and are not purchased as often. They may include jewelry and appliances. Consumable products are purchased frequently and finished quickly. They include groceries, foodstuffs or even cigarettes. Products are part of many investment portfolios. The most preferred investment is in the consumable goods category owing to its stability and the high and stable demand consumable products. The producers of products are normally referred to as price makers. This is because they have an influence over the price of the finished products though not to a wider extent. Such producers, by the fact that they are creating their own differentiated products, ultimately create their own separate and distinct markets for their products. For example, Hugo Boss Perfume and a Hugo Boss deluxe edition perfume. Hugo Boss Company has the prerogative to charge both products at different prices, and it’s the deluxe edition that’s poised to go at a higher price since it’s a luxury product. Even so, price makers do not have absolute control over prices as many people believe. This is because consumers have a say in determining the value of a product. Consumers can only purchase products as many times if they perceive the value of the product to be higher than its price.

What are the differences between Commodities and Products ?

In conclusion, we can deduce the distinction of commodities and products to be as follows:

  • A product is the final output of a commodity that has undergone value-addition whereas the commodity is the generic form of products.
  • A commodity has a constant price while a product has a varied price.
  • Commodities are fungible and undifferentiated while products are differentiated.

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