Differences in Behavior between Hard and Soft Commodities

Soft commodities are generally those grown or produced through the agriculture industry. Hard commodities, on the other hand, is a term that refers to commodities extracted or mined, such as metals, oil and natural gas. The key difference in these two categories is the sensitivity of soft commodities to spoilage, which changes the way the commodities prices behave for this area.

Weather and Climate

Hard assets tend to have a more consistent price over time, with small fluctuations in between. A "hard" asset in most applications is a term used to describe something with an intrinsic value that can be held for long-term profit. With a soft commodity, weather or climate can affect the supply of the product. This can inflate and deflate prices, representing a less consistent price over time.

Timing of Sales

In addition to the affects of weather and climate on a soft commodity, the fact remains that it will eventually spoil if held too long. For example, a shipment of soy beans cannot be kept for too long, and it may need to be sold even if the price is not favorable at the given moment. As a result, those individuals who hold soft commodities are at the mercy of pricing and cannot individually decide when to release a sale.

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