What is a Cash Commodity?

Malcolm Tatum

Different from a futures commodity, a cash commodity is a physical asset that is being purchased or sold, with payment rendered immediately. Ownership of a cash commodity is transferred upon receipt of the payment. In some markets, a cash commodity is referred to as actuals.

Corn is a cash commodity.
Corn is a cash commodity.

The underlying premise of the cash commodity is not the same as a futures commodity. With futures, the goods or securities are purchased or sold with the stipulation of future delivery. This usually works out fine for the buyer and seller, as the seller does recognize immediate benefit from the sale, and the buyer is free to put the security or asset up for immediate sale without having to wait for actual possession to take place. Often, investors engage in the execution of a futures contract with the intent of making a quick profit from turning over the asset.

With a cash commodity, there is no deferred period before delivery of the good or security. Possession is often held for a period of time before another sale is engaged. In fact, some types of cash commodities are intended for long term ownership. Precious metals such as gold or silver are examples of a cash commodity that the investor is likely to retain for an extended period of time.

In other cases, the cash commodity may be sold in the short term, depending on market conditions. This is particularly true with any cash commodity that may have a relatively short shelf life. Products such as soybeans or corn are examples of a cash commodity that is acquired and then sold to an appropriate investor within a short period of time.

As with any type of investment opportunity, dealing with a cash commodity requires careful investigation about the chances for realizing a profit from the venture. When selling a cash commodity, the goal is to hold onto the commodity until market conditions are right for selling at a good price. For buyers, the idea is to acquire the cash commodity at a price that is competitive and will ultimately increase enough in value to make the resale worth the time and effort involved with making the original purchase.

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