What Does A Soft Commodity Mean?

What Does A Soft Commodity Mean?

As we know, commodities trading is a popular method for market participants to gain exposure to price changes in various crucial products, such as oil, gas, gold, wheat, maize, etc. 

Wheat and maize are especially important commodities, as they are the bedrock of the global food industry and disruptions in the supply chain of these commodities can have major adverse effects on the wellbeing of people around the world. 

Commodities like wheat and maize are known as soft commodities. Traders can buy and sell futures contracts on soft commodities when they anticipate a rise in the price of grains, whether it be for some major supply shocks or increasing demand. 

Other soft commodities include oilseeds, livestock, tropical fruits, etc. Soft commodities are distinct from hard commodities, which are typically extracted or mined, such as metals and energy resources.

Soft commodities are an important part of global agricultural and food markets, and their prices are influenced by factors like weather conditions, supply and demand dynamics, and geopolitical events.

If you are a beginner trader and would like to know more about how soft commodities work, this investfox guide is for you. 

Types Of Soft Commodities

Soft commodities are a group that includes a wide variety of agricultural products that are essential for global food production. 

Some notable subsets of soft commodities include:

  • Grains: Wheat, corn (maize), oats, rice, soybeans, barley
  • Oilseeds: Soybeans, rapeseed, sunflower seeds
  • Soft Fibers: Cotton
  • Livestock: Cattle, hogs, poultry 
  • Nuts: Almonds, walnuts, cashews
  • Tropical Products: Coffee, cocoa, sugar, tea 
  • Spices: Pepper, vanilla, cinnamon 
  • Other Agricultural Products: Rubber, palm oil, wool, tobacco

Keeping track of all of these soft commodities and their prices can be a tedious task. However, investors can also follow indices that track the performance of the soft commodities market overall. One such index is the S&P 500 GSCi Softs Index. 

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Differences between soft and hard commodities

Hard commodities are commodities that are obtained through mining or other extraction methods, such as oil, gold, silver, copper, etc. 

There are a few core differences between soft and hard commodities. Here are some important distinctions:

  • Production Method: Soft commodities are derived from agriculture and are primarily produced through farming, while hard commodities are mined and extracted from the ground. Grains and other agricultural products are soft commodities, while metals and oil are hard commodities
  • Price Determinants: Soft commodity prices are heavily influenced by factors like weather conditions, agricultural practices, crop yields, supply and demand dynamics, and geopolitical events that affect agricultural production. On the other hand, hard commodity prices are influenced by factors related to resource availability, production capacity, industrial demand, and geopolitical factors specific to mining and extraction industries
  • Storage and Transport: Soft commodities have relatively shorter shelf lives and may require specialized storage and transportation conditions to maintain quality. On the other hand, hard commodities are not perishable and require different storage and transportation infrastructure, such as pipelines, storage tanks, or heavy machinery, depending on the specific commodity

Pros And Cons Of Investing In Soft Commodities

Investing in soft commodities comes with its own fair share of risks and advantages and considering them is essential for investors to decide whether it is the best course of action for their investment objectives. 


  • Global Demand: Soft commodities benefit from the growing global population and increasing food demand. Emerging markets' rising middle class and dietary changes contribute to sustained demand for agricultural products, potentially offering long-term investment opportunities
  • Inflation Hedge: Soft commodities have historically acted as a hedge against inflation. When inflation rises, the prices of agricultural products often follow suit, helping investors preserve their purchasing power
  • Diversification: Investing in soft commodities can add diversification to an investment portfolio. These assets often have a low correlation with traditional financial assets like stocks and bonds, which means they can provide a hedge against market volatility


  • Price Volatility: Soft commodities are subject to significant price volatility due to factors like weather conditions, crop diseases, and geopolitical events. This volatility can lead to unpredictable price swings, making it challenging for investors to anticipate returns accurately
  • Storage and Perishability: Investing in physical soft commodities can be logistically challenging and costly due to storage requirements and potential spoilage. This is especially true for perishable products like fruits and vegetables
  • Regulatory and Seasonal Risks: The agricultural sector is subject to regulatory risks, such as changes in trade policies and agricultural subsidies. Additionally, soft commodity prices often exhibit seasonal patterns, which means investors may need to time their investments carefully to capture potential gains

Key Takeaways From What Does A Soft Commodity Mean

  • Soft commodities are commodities that are derived from agricultural methods, such as grains, livestock, soft fibers, etc
  • Soft commodities are crucial for the functioning of the global population, which is why the prices of these commodities are closely monitored by investors and major producers 
  • The S&P GSCI Softs Index is one of the most followed soft commodities indices in the world 
  • Perishability and storage are two of the most important factors to consider when investing in soft commodities

FAQs On Soft Commodities

What are soft commodities?

Soft commodities, also known as agricultural commodities, are raw, natural resources derived from agriculture. They include crops (wheat, soybeans), livestock (cattle, hogs), soft fibers (cotton), tropical products (coffee, cocoa), and more.

Are soft commodities risky investments?

Yes, soft commodities can be risky. Their prices are influenced by factors like weather, disease, and geopolitical events, leading to significant price volatility. Additionally, storage and perishability issues can add logistical challenges for investors in physical soft commodities.

Can I invest in soft commodities?

Yes, you can invest in soft commodities. There are several ways to do so, including purchasing futures contracts, exchange-traded funds (ETFs), or directly investing in agricultural companies.