Exchanges and who trades commodities

Commodities trade on organized exchanges that standardize the contracts and guarantee the trades through a clearing house.

The major exchanges

• CME Group (Chicago) — the largest, covering grains (corn, soybeans, wheat) via the old CBOT, energy and metals via NYMEX/COMEX, and livestock. WTI crude, gold, corn and live cattle all trade here.
• ICE (Intercontinental Exchange) — Brent crude, coffee, sugar, cotton and cocoa.
• B3 (Brazil, in São Paulo) — Brazil's exchange lists futures on live cattle (boi gordo), corn, coffee (arabica), ethanol and gold, quoted in reais. This lets Brazilian producers hedge in their own currency.
• LME (London Metal Exchange) — the global hub for industrial metals like copper, aluminium and zinc.
• SHFE / DCE (Shanghai, Dalian) — major Chinese exchanges, increasingly important given China's appetite for raw materials.

The three types of participant

Every commodity market is a meeting of three groups, and understanding their motives explains price behaviour:

• Producers (hedgers, sell side) — farmers, miners, oil companies. They own or will own the physical commodity and sell futures to lock in a price, protecting against a fall.
• Consumers (hedgers, buy side) — airlines buying fuel, food companies buying grain, jewellers buying gold. They buy futures to lock in their costs, protecting against a rise.
• Speculators — traders and funds with no interest in the physical good, who take positions purely to profit from price moves. They provide the liquidity that lets hedgers transfer risk.

A healthy market needs all three. Hedgers want to offload price risk; speculators are willing to take it on for a potential reward. That transfer of risk is the economic purpose commodities futures serve.