Soft Commodities are commodities such as Coffee, Cocoa, Sugar and Fruit. This term generally refers to commodities that are grown, rather than mined. Soft Commodities play a major part in the Futures Market. They are used both by farmers wishing to lock-in the future prices of their crops, and by speculative investors seeking a profit.
It is important to note that trading in this market involves substantial risks and is not suitable for everyone, and only risk capital should be used. A Soft Futures Contract is a legally binding agreement for the delivery of Cocoa, Coffee, Cotton, Frozen Concentrated Orange Juice and Sugar in the future at an agreed upon price. The contracts are standardized by the ICE Futures U.S. Most futures contracts are offset prior to delivery, meaning that most contracts are speculators trying to profit off of price movements.
The advantage of a Futures Contract is that unlike Equities, Futures Contracts can be shorted on a downtick, which gives market participants greater flexibility. This flexibility allows hedgers to protect their physical position and speculators to take a position based on market expectations.
Cocoa is traded in dollars per metric ton and one contract is for 10 metric tons. Cocoa is deliverable in March, May, July, September and December. Coffee is traded in cents per pound. One contract controls 37,500 pounds of coffee. Coffee is deliverable in March, May, July, September and December. Cotton is traded in 50,000 pound contracts. Cotton is deliverable in March, May, July, October and December.
Frozen Concentrated Orange Juice is traded in cents per pound. One contract equals 15,000 pounds and is traded more in January, March, May, July, September and December. Sugar trades in contracts of 112,000 pounds as well as in cents per pound, deliverable in March, May, July and October.