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What Are Export Commodities?

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  • Originally Written By: S. Miller
  • Revised By: C. Mitchell
  • Edited By: A. Joseph
  • Last Modified Date: 24 September 2016
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Export commodities are substances or goods that are produced in one country, then shipped to others for distribution and sale abroad. Exporting commodities allows a nation with an excess supply of something to deliver it to another that is unable to produce the same item or unable to produce enough of it. Some of the most common examples include agricultural items, particularly region-specific fruits and vegetables, and natural resources like oil and precious stones. Certain medicines and specialized technology may also qualify. Investors are often interested in helping finance the export of commodities because it allows sales to more customers, which often means additional profits.

Understanding Commodities Generally

The term “commodities” is generally understood as goods that are essentially the same no matter where they are produced. They are uniform in their basic identity, though there can be and often are differences when it comes to quality. Almost all countries produce some basic commodities internally, and these are often the things that provide basic stability for local economies. Things like agricultural crops, livestock, and any natural resources like metal or timber are some of the most common examples.

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Manufactured goods can sometimes also be considered commodities if the fundamental product is basically the same no matter who makes it or where it is produced. Silicon microchips are one example. This is not to say that there aren't differences between products, but rather that as the ability to produce products of a certain quality has become more widespread, the products that are produced have become relatively equivalent. Manufactured products that vary widely in quality, price and design are not usually considered commodities. These tend to be classified as consumer goods or general merchandise.

Reasons for Exportation

A commodity becomes an export commodity when it is intentionally shipped beyond the borders of its country of origin for the express purpose of sale elsewhere. There are many reasons why this happens. Sometimes the producing country has an excessive supply, or perhaps the importing countries don’t have a way of producing that same product themselves or can’t produce enough to meet their demand. In other instances, the good in question will fetch a higher price elsewhere, as is often the case with things shipped from developing countries into the West. Consumers in Europe and North America are often willing to pay far more for something than would local people at the site of production or harvest, which can vastly improve profits. The international commodities market is filled with transactions of all sorts, and at virtually all price points.

Common Examples

Commodities prepared for export typically fall into three main categories: things that grow in a particular region; things that are natural resources of that region; and things that are produced by manufacturing experts there. Foods and plants that grow best in certain climates or regions are some of the most common examples. Exporting is the reason why so many avocados in markets all over the world come from Mexico, for instance.

Natural resources that are abundant in one country are often exported to countries where such resources are scarce, too. For example, French Polynesia exports cultured pearls, coconut products, mother-of-pearl, vanilla and shark meat, which are all natural resources there, to countries that do not have ready access to those goods. Some natural resources that are exported are used as fuel, food or building materials, such as the oil and petroleum products exported from Sudan and the coal and iron ore exported from Australia.

One of the most common manufactured products to gain real traction as an export is medicine. Pharmaceutical manufacturing takes both a lot of resources and a highly skilled workforce, and not all countries have access to these things. Almost all have a need for advanced medicine, though, which makes the import of certain products both important and, in many cases, less expensive than internal manufacturing.

Investment Opportunities

In addition to providing a truly global marketplace for goods, the international commodities marketplace is a ripe place for investing. Major financial backers frequently fund export activities, often through the purchase of shares or stakes in profits. Investing in export commodities is, like all investments, a gamble. It’s not always possible to anticipate yields, and things like weather or natural disaster can significantly hamper production; economic crises and collapses can also drive the prices of certain exports either way up or way down. Commodities investments experts usually have advanced rubrics that they use to anticipate and predict market changes.

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bear78
Post 3

I thought that commodities were just raw materials like sugar, wheat, coffee, cotton, metal or gas. Is it true that things like interest rates are commodities too and can be bought and sold? I know that people sell one another loans all the time, but I had no idea that interest rates can be traded.

I guess most of the commodities exported are still essential, raw items. But as the global economy grows, newer and newer commodities are being exported.

fBoyle
Post 2

@ZipLine-- Yes, that's often done in export markets. Traders use these markets to buy, sell or profit from commodities.

There are two reasons why a trader would buy a futures commodity. One is to just make a profit by buying a commodity when the price is low and selling it when the price increases. Another reason is that a manufacturer might want to guarantee a commodity at the current price because he knows he will need it.

For example, let's say that a manufacturer making cereal needs corn and corn prices are very good at that time. But the farmer who is selling corn at the export market has not harvested the corn yet. He will harvest it

after three months. The manufacturer can buy a futures for the corn at that time, for the corn to be delivered to him three months later. That way, he has guaranteed the corn at that price. This also works out for the farmer because even if corn prices go down in three months, he has already sold it at the price he wants.
ZipLine
Post 1

Can anyone tell me a little bit about futures commodities? My instructor talked about it briefly but I didn't understand it entirely. Is this when people buy a commodity in an exchange market that doesn't exist yet? Why do they do that though?

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