When people think of commodity trading, oil and gold usually come to mind first. But some of the most dramatic price moves of recent years have come from far more everyday goods: the cocoa in a chocolate bar, the coffee in a morning cup, the sugar in a fizzy drink. These are soft commodities, and they behave quite differently from the metals and energy markets that dominate the headlines.
What makes a commodity soft
Commodities are usually split into two broad groups. Hard commodities are mined or extracted, such as oil, gas, gold and copper. Soft commodities are grown rather than dug up.
The term is most often used for a group of tropical and agricultural crops: cocoa, coffee, sugar, cotton and orange juice. Grains such as wheat, corn and soybeans, and livestock such as cattle, are also agricultural, but they are often treated as separate groups in their own right.
Weather is the biggest driver
The defining feature of soft commodities is that their supply depends on the weather. A drought, a flood, an unusually cold spell or a crop disease can wipe out a large part of a harvest. Because many of these crops are concentrated in a small number of regions, a problem in one place can affect global supply.
Cocoa is the clearest recent example. Most of the world’s cocoa comes from West Africa, particularly Ivory Coast and Ghana. Poor weather and disease there hit harvests hard, and cocoa prices surged to record highs in 2024. Chocolate makers responded with higher prices and smaller bars, which is a reminder that these markets reach all the way to the supermarket shelf.
Coffee works in a similar way. Brazil and Vietnam are the largest producers, so frost or drought in those countries can move prices sharply.
Seasons and long lead times
Crops follow growing seasons, so supply arrives in waves rather than steadily. Some, like coffee and cocoa, come from trees that take years to mature. That means farmers cannot quickly increase output when prices rise, which can keep prices high for longer after a shortage.
Demand matters too
On the demand side, soft commodities are linked to consumer habits and economic growth. Rising incomes in emerging markets can increase demand for coffee and chocolate. Sugar prices can be affected by how much sugar cane is diverted into making ethanol fuel, which links them indirectly to oil prices.
Why the dollar matters
Like most commodities, softs are priced in US dollars. A stronger dollar can make them more expensive for buyers using other currencies, which can weigh on demand. Our explainer on how dollar strength hits commodity prices covers this relationship. Currency moves in producer countries matter as well. If the Brazilian real weakens, for example, Brazilian coffee farmers earn more in local terms, which can encourage them to sell more.
How softs are traded
Soft commodities are mainly traded through futures contracts on exchanges in New York and London. A futures contract is an agreement to buy or sell a set amount at a set price on a future date. Our guide to open interest in futures explains one of the measures traders use to judge how much activity sits behind a price move. Retail traders more often get exposure through spread bets, contracts for difference or exchange-traded products.
Why they can be so volatile
Soft commodity markets are often smaller than oil or gold markets, which means large buyers or sellers can move prices more. Combine that with sudden weather shocks and limited ability to boost supply quickly, and price swings can be extreme. Moves that would be shocking in a major currency pair can happen in cocoa or coffee within weeks.
That volatility is why risk management matters. Position sizes that feel comfortable in a calmer market can be far too large in a soft commodity.
The takeaway
Soft commodities are crops such as cocoa, coffee, sugar and cotton. Their prices are driven above all by weather and harvests, with the dollar, demand and producer currencies adding to the picture. They can be fascinating to follow, but they demand respect for how quickly they move.
If you want to understand how commodity markets fit together, our free trader assessment can show you where your knowledge stands and what to learn next.
