Grades in Commodities

Grade in commodity market refers to the purity or quality of the deliverable into the futures contract. Grade definition varies from contract to contract and also from exchange to exchange. Each exchange offer a range of products and according to the quality, the prices may vary.

Grades are really critical in case of agricultural commodities such as rice, wheat, soybean etc. Similar to others, energy, precious metals and industrial metal commodities, futures contract clearly mentions the grade of the commodity to be delivered at maturity.

For instance, a grade in gold contract is described in the following way:

In fulfillment of each contract, the seller must deliver 100 troy ounces (±5%) of refined gold, assaying not less than .995 fineness, cast either in one bar or in three one-kilogram bars, and bearing a serial number and identifying stamp of a refiner approved and listed by the Exchange.