Cash Course: What Are Commodities?

hey what do you have there oh just some cucumbers we're going to be making our grandma's famous pickles sounds delicious did you know Henry Hines yes that Henry hindes Once went bankrupt because he bought too many cucumbers too many cucumbers yes in 1873 he had a contract to buy all the Cucumbers from a farm in Illinois to prod produce his pickles and other foods but there was an unexpected bumper crop come Harvest time and he was forced to buy more than he expected at too high a price ouch it's a punch to the pocketbook all right but this kind of commodity trading has been going on for a long time Farmers receive a contract for their Harvest and manufacturers purchase the commodity for their own use all at a specific price determined before the product is even harvested or produced but but what is a commodity H Commodities are raw materials that get harvested mined or extracted from the earth then turned into products for people to use people grow soft Commodities like wheat soybeans and cows hard Commodities are things the Earth contains that can be extracted like oil gas and minerals and get this not only do people and businesses buy and use these commodities for making food and other everyday products but they also invest in them to make money it's like trading stocks except instead of companies people are investing in physical stuff do these gold coins from my gram account wait she gave you gold coins that's not fair yes owning medals like gold or silver whether physical bars or mined coins is the most basic way of investing in Commodities you can acquire them directly like other Investments but the most common way of investing in many commodities is through Futures contracts which have broad economic benefits these are agreements made to buy or sell a commodity at a specific price in the future and help protect businesses and manufacturers from frequent price fluctuations for example an airline may buy a Futures Contract in oil in order to protect themselves against future price fluctuations on the other hand investors also called speculators who most likely never actually see or use the oil or other Commodities themselves purchase and trade Futures contracts hoping to profit from those price fluctuations but how does someone know what the price of something will be in the future that's a good question no one can know of course which is what makes trading Commodities risky professional Traders take on this risk after spending lots of time studying and researching the past in the present to predict where prices will move in the future so how does it work I think they're about to tell you let's use corn for a simple illustration a farmer plants his corn and a commodity Trader contracts to buy the future Harvest for $5 a bushel if the trader holds the contract till Harvest time he will pay the farmer the promised price he will then either use the corn in say his Popcorn Factory or sell the commodity to someone else for other uses at that time if the current price or the spot price for corn is $1 a bushel due to excess Supply the trader will have lost money on his contract on the other hand if the spot pric is $10 a bushel due to a lack of Supply the trader will have made a profit whether he uses or sells the corn depending on the conditions of an Investor's Futures contracts he or she may make great gains or losses while some Commodities like gold steel or cotton for example have relatively stable prices over certain periods most Commodities are fast-paced investments whose prices are always changing due to supply and demand the value of the US dollar competition government policies and even the weather the weather yep in an instant Mother Nature can wipe out entire crops Hal production of finished products and put huge demands on energy this can cause expected Supply to be unpredictable and future prices of a certain certain commodity to soar now that you know something about Commodities here are some things to think about one there are Commodities and finished products all around us whether in the food we eat or the energy we use observe how prices change and by how much if at all and how that might affect your own personal finances two Commodities and their prices have a huge impact on a nation's economy all the way down to the Gas Pump and the grocery aisle and and are affected by a whole host of factors stay on top of what's going on both nationally and globally to be a more Savvy citizen three if you ever want to invest in Commodities do your research understand the risks and be aware of fraud commodity dealers need to be registered with a commodity regulatory agency and all transactions should be regulated by a commodity exchange if the deal sounds too good to be true it probably is nothing brings people together like making money and making money has brought Farmers Traders and manufacturers together for centuries to predict the future through buying and selling commodities trying to bet on the future can be risky business but it can also have huge and delicious [Music] returns this is fantastic I'm going to relish this moment watch more at Prager kids.com and parents don't don't forget to subscribe