What is a commodity? Fungibility, grades and price
A commodity is a good sold by written specification rather than by brand, so that any lot meeting the specification is accepted in place of any other and one published price can cover them all. That property is called fungibility. It is the difference between buying “hard red winter wheat, 12% protein, delivered US Gulf” and buying a particular farmer’s harvest.
Fungibility is not a natural property of a substance. It is manufactured by writing a standard, appointing someone to certify against it, and agreeing where and when delivery happens. Wheat is a commodity because a contract says which class, which protein band, which moisture ceiling and which loading port. Fresh strawberries are not, because nobody has made that agreement stick.
How does a specification turn a crop into a price?
Start with the physical good. Rice, wheat, copper ore and crude oil all arrive from the field or mine in a wide spread of qualities. Milling, smelting or refining narrows that spread, and grading sorts what remains into named buckets. Each bucket gets a specification: for milled rice, the maximum share of broken grains; for crude oil, the density and sulfur content; for copper cathode, the purity and the shape of the plate.
Once the buckets exist, a price can attach to each one. A benchmark is one bucket that trades often enough for its price to be quoted continuously and used as the reference for everything else. The gap between the benchmark and a different grade or a different port is a differential, and it is negotiated separately. A cargo of lower-grade rice does not get its own benchmark; it gets the benchmark minus a number.
Delivery terms matter as much as quality. A price quoted FOB means the seller’s obligation ends when the goods are loaded at the named port, so freight and insurance sit with the buyer. Change the port and you change the price without changing the grain. This is why “the price of rice” is meaningless until you name a grade and a loading point, and why the site’s rice price page lists several series rather than one.
The last piece is time. A spot price refers to goods available now; a futures contract fixes a price today for delivery in a stated month. Both are prices for the same commodity, and they usually differ. That separation is covered in spot versus futures.
One crop becomes three interchangeable-within-grade products, and the gaps between them are negotiated separately from the level of the market.
A worked example
Take milled rice in a single month. In August 2026 the World Bank Pink Sheet quoted Thai 5% broken rice at $471 per tonne, Thai 25% broken at $447 per tonne, and Vietnamese 5% broken at $410.90 per tonne. All three are milled rice; all three came off paddy that was part of world production of 819.8 million tonnes in 2024, of which India grew 217.9 million tonnes, or 26.6% (FAOSTAT).
Read the gaps rather than the levels. Holding origin constant, moving from 5% to 25% broken grains was worth $24 per tonne in August 2026: that is what buyers paid to avoid a higher share of fragmented kernels. Holding grade constant, moving from Thailand to Vietnam was worth $60.10 per tonne in the same month: that gap reflects freight, credit terms, buyer preference and the reliability of the loading port, not the quality of the grain.
Both gaps are differentials, and both can move independently of the headline market. A trader who buys Vietnamese 5% broken and sells against a Thai quotation is exposed to the differential, not to the level of rice prices. The commodity page for rice sets out where each origin’s crop comes from and when it is harvested.
Where the definition gets blurry
Three cases sit at the edge. First, processing: green coffee beans are a commodity, and world production reached 11.1 million tonnes in 2024, of which Brazil grew 3.39 million tonnes, or 30.4% (FAOSTAT). Roasted coffee is barely a commodity at all, because roast profile and brand do most of the work. The customs system draws the same line, giving green and roasted coffee separate codes, as explained in HS codes.
Second, geography: natural gas meets every test of fungibility inside a pipeline network but not between networks, because moving it requires liquefaction. In August 2026 the Pink Sheet quoted US Henry Hub gas at $2.77 per million British thermal units and European TTF gas at $21.11 per million British thermal units. Same molecule, two prices, no arbitrage that closes the gap quickly.
Third, purity: gold is fungible to a bar standard, and the Pink Sheet quoted the London PM fix at $4,411 per troy ounce in August 2026. But a bar’s acceptability depends on its refiner and its chain of custody, so two chemically identical bars can differ in value.
The practical test is not “is this a raw material” but “can a buyer agree to a price before seeing the goods”. Where the answer is yes, a benchmark forms, a futures market usually follows, and the price becomes public. Where the answer is no, every sale is a negotiation and there is no published number to quote. The list of what this site tracks, and the benchmark used for each, is on the benchmarks explainer.
Frequently asked questions
What makes a good a commodity?
A good is a commodity when buyers accept any seller's lot that meets an agreed specification, so the identity of the producer does not change the price. That specification covers quality, quantity, delivery place and delivery time. Grade and origin still create price gaps, but within one grade the units are interchangeable.
What does fungible mean in commodity trading?
Fungible means one unit substitutes for another without renegotiating the deal. A tonne of Thai 5% broken rice loaded in Bangkok is fungible with any other tonne meeting that grade. Fungibility is what lets exchanges write standard contracts and lets buyers hedge without owning a specific cargo.
Is gold a commodity?
Yes. Gold trades to a defined purity and bar standard, and the World Bank Pink Sheet quoted the London PM fix at $4,411 per troy ounce in August 2026. Its main uses are jewelry, reserves and investment rather than manufacturing, which is why its price responds to different drivers from industrial metals.
Are all raw materials commodities?
No. A raw material becomes a commodity only when a common specification exists and enough independent buyers and sellers trade against it. Diamonds are a raw material but are graded stone by stone, so no single interchangeable unit exists and no continuous benchmark price is published.
Why do two grades of the same crop cost different amounts?
Because the specification differs and buyers value the difference. In August 2026 the World Bank Pink Sheet quoted Thai 5% broken rice at $471 per tonne and Thai 25% broken at $447 per tonne, a gap of $24 per tonne for the higher share of broken grains.
Who decides what grade a shipment is?
Independent surveyors and, for exchange-delivered lots, exchange-licensed graders inspect the cargo against a written standard covering moisture, damage, size and contaminants. Their certificate travels with the shipping documents, which is what allows a buyer to pay for goods never physically inspected.
Commodities on this site with no benchmark price (40)
No institution publishes a continuous benchmark price for any of these, which is what the fungibility test above predicts. Their pages therefore have no price section.