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A strategic commodity is a raw material or agricultural product that is crucial to a nation’s economy, and disruption in its trade can have disastrous consequences. Identifying strategic commodities can be challenging, and nations monitor them closely to minimize their impact on the economy.
A strategic commodity is a commodity that is considered to be of paramount importance to a nation’s economy, generally to the extent that if open trade in the commodity is disrupted in any way, the economy will suffer severely. Commodities are generally understood to be raw materials or agricultural products that can be bought and sold as investments, as well as for ongoing consumption. Commodities of this type are often widely used and active trade in these products can prop up a nation’s economy. If a commodity that in fact contributes greatly to a nation’s economic stability is suddenly unavailable, the results can be far-reaching.
Determining what constitutes a strategic commodity is not always easy. While there is general agreement on some products that have strategic status, such as oil, corn, and gold, there may be debate about other products such as the fertilizers used to grow corn or other alloys that are sometimes used in conjunction with gold. It is also important to note that while some products may be very important to one nation’s economy, they may have minimal impact on the economy of a different nation.
The identification of any strategic commodity within a given environment is based on how crucial open trade in that commodity is to the well-being of the economy. If the supply of that commodity were suddenly shortened, this might benefit some, but overall it could have disastrous results for the majority of consumers who depend on products made from that commodity. At the same time, a sudden glut of that same commodity on the market can result in lower prices for related goods, something that consumers would enjoy, but not necessarily be welcomed by investors who would see their profit per unit significantly reduced.
Many nations monitor a list of strategic products that are traded within their borders. Monitoring involves not only being aware of what is happening with those products now but also what is likely to happen in terms of availability in the future. For example, if the strategic commodity corn is currently trading at fair levels, but there is a good chance that supply in the coming period will decrease due to adverse weather conditions or the occurrence of a natural disaster, governments may begin to take measurements now. to help minimize the impact of that decline. Doing so would help minimize the impact of the decline on the economy, with enough hope for a substantial supply of the strategic commodity to be replenished at a later date.
Smart Asset.
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