Commodity Pricing Definition

A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. Commodities are produced by many different producers and are traded on an exchange.

Prices for commodities are determined by the forces of supply and demand in the market. The price of a commodity reflects the cost of production as well as the current market conditions for that particular good. When there is high demand for a commodity, prices will rise; when there is low demand, prices will fall.