Soft commodities are natural, cultivated products such as sugar, wheat, corn, palm oil, soybeans, livestock, and more. They’re informally referred to as ‘softs’. The key feature of soft commodities is that they’re grown (and nurtured or raised), not mined.
With soft commodities necessary for daily sustenance, their availability and lack thereof offer an opportunity for traders and investors to speculate about their future. This is because soft commodities face many risks that affect their delivery, such as irregular weather patterns and soil degradation, which cause uncertainty in the market.
Discover how commodity markets work and what drives price movements. Learn practical strategies to trade both hard and soft commodities. Start your journey with Forexdrift and explore trading opportunities today.
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Hard commodities are products that are mined, such as crude oil, gold, and copper. The standout feature of hard commodities is that they’re found below the earth’s surface in certain geological regions.
Examples include:
Learn more about how to trade or invest in the gold and silver prices, and oil prices after Iran attack, and invest according to market movement
Hard and soft commodities are the two main categories of raw materials traded in global markets. Hard commodities are natural resources that are extracted from the earth, such as crude oil, gold, and copper, while soft commodities are agricultural products that are grown or raised, including wheat, coffee, cotton, and livestock. This classification helps traders understand how supply chains work, as hard commodities depend on mining and geological availability, whereas soft commodities rely heavily on climate conditions, seasonal cycles, and farming practices.
The difference between hard and soft commodities mainly comes down to how they’re produced and the risks that affect their prices. Hard commodities are mined or drilled, meaning their supply is tied to natural reserves and large-scale extraction processes. In contrast, soft commodities are cultivated, making them more vulnerable to weather changes, pests, and geopolitical factors affecting agriculture. Because of this, soft commodities often experience sharper short-term price fluctuations, while hard commodities tend to follow longer-term trends based on global demand, industrial use, and economic growth.
Examples of hard commodities include precious metals like gold, silver, and platinum, base metals such as copper, zinc, and nickel, and energy resources like crude oil and natural gas. These commodities are widely used in industries ranging from construction to electronics and energy production. On the other hand, products like cotton and lumber fall under soft commodities, as they are grown and harvested rather than extracted. So, if you’re wondering “is cotton a soft commodity” or “is lumber a soft commodity,” the answer is yes—both are classic examples of soft commodities due to their agricultural or forestry origins.
Soft commodities are traded on some well-known exchanges, such as the ICE, the CBOT, and the Kansas Board of Trade (KCBT). However, you don’t have to trade soft commodities directly on a formal exchange – you can trade them over the counter (OTC) with us. This means you can trade commodities listed on several exchanges in one place.
When trading OTC, you’ll use a broker, like us, to execute your trades, which often means more opportunities, but it also has unique risks.
With us, you can choose to trade commodities on the spot, on our undated market, or via options and futures. Trading on the spot means your trade will be executed immediately, at the current market price. Options and futures enable you to trade soft commodities at a specific date and a specific price in the future.
There are a number of reasons why people choose to trade soft commodity markets. First, it’s important to understand that this specific sector is very volatile, as agricultural production is notoriously unpredictable. Traders who prefer high-risk markets often choose soft commodities because their price fluctuations could present more trading opportunities.
However, its volatile nature also means soft commodities carry high risk. An unfavourable weather event – like heavy rains or a drought, for example – can cause havoc on soft commodities, causing drastic price changes in a short period of time. Further, changes to import and export volumes can also directly affect soft commodity prices.
A more recent example of the volatile nature of soft commodities can be seen in the effect of the Ukraine-Russia war. Corn prices increased rapidly, partly due to the fact that Ukrainian corn crops were 54% smaller than in 2021, restricting supply.
Trading soft commodities on leverage only amplifies the risk. You should always take appropriate risk management steps when opening a position using derivatives.
There are a few different ways to take a position on soft commodities with us.
You can open a CFD trading account to speculate on the spot (undated), futures, and options prices of a range of soft commodities. You’ll also be able to trade on share and ETF prices using derivatives rather than owning any actual shares.
You’ll trade CFDs using leverage, which means you have to put down a deposit to open a position. Leverage increases profits and losses, as these are based on the full position size, not the deposit. Always manage your risk carefully.
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