Premium

A premium is an amount added to a benchmark or base price to reflect better quality, location, timing, or scarcity of a specific commodity lot.

A premium shows up whenever a specific lot of a commodity is worth more than the reference price it is quoted against. Coffee grown at high altitude with a clean cup profile can earn a premium over the general benchmark price for its origin; a cargo of crude oil that is easy to refine into valuable fuels can earn a premium over a heavier, sourer grade priced from the same region.

Premiums move with conditions that are specific to the graded lot rather than the whole market. A shortage of a particular high-quality grade, a shorter shipping distance, or timing that suits a buyer’s needs can all widen a premium even while the underlying benchmark is flat. The opposite of a premium is a discount, and together they make up the differential between a specific lot and its reference price.