This industry classification includes establishments primarily engaged in buying and selling commodity contracts (futures) on either a spot or future basis for their own account or for the account of others. These establishments are members, or are associated with members, of recognized commodity exchanges. Establishments primarily engaged in buying and selling commodities are classified in wholesale trade. However, the Chicago Board Trade doesn't trade, it just provides facilities for members to trade future and options contracts.
523130 (Commodity Contracts Dealings)
523140 (Commodity Brokerage)
In 1997, 2,044 establishments operated under this industry classification, most of which were commodity contracts brokerages. The industry employed 17,763 people and generated $5.3 billion.
In general, brokers are independent traders who bring together buyers and sellers of the same commodity and execute their orders. The broker receives a commission on each of these transactions. These brokers are agents of their clients and are, therefore, subject to the law of agency in their dealings with their clients. In contrast to the broker's role as an agent, a dealer acts as a principal in relations with customers. This is the only difference between commodities brokers and dealers.
Commodities brokers and dealers are engaged in the trade of commodities on either a current, "spot," or a future basis. Commodities are typically agricultural, mineral, or other basic products and financial futures that are traded on a commodity exchange. The products are generally substitutable. This means that the purchaser is unlikely to differentiate between one unit of the product and another. Agricultural products such as wheat, corn and soybean contracts are written with certain grade and other specifications as standardized contracts stating the quantity and quality of the product.
The commodity exchanges are organizations that are owned by their members for the purpose of bringing buyers and sellers together. The transactions made by these parties can be performed on a spot basis, in which the commodity is sold for cash and immediate delivery, or on a future basis, under which the purchaser has the right to buy a commodity at a future time at a fixed price. There are a number of these exchanges throughout the country, all of which are supervised by the federal government under the Commodity Exchange Act administered by the Commodity Futures Trading Commission.
Commodity prices are quoted on either a spot or future basis on an electronic board each time they change. Future prices are quoted based on the date of delivery of the contracted commodities. Prices are quoted as they occur based on trades in trading pits during specified hours. Trades are only made by members. There has been a trend in the commodities futures markets to move away from traditional commodities. As the type and number of commodity futures contracts have increased, brokers have handled ever higher volumes.
Commodity brokers and dealers range in size from large operations to small businesses. Industry leaders include Smith Barney, Andersons Investment Service Corporation, Archer Daniel Midland Company, Bank America Corporation, Bankers Trust New York Corporation, Bunge Corporation, Citicorp, Credit Lyonnais, Rouse USA Ltd., Dean Reynolds, Inc., First Chicago Corporation, Goldman Sachs Company, J.P. Morgan Futures Inc., Merrill Lynch Futures Inc., and Yamaichi International.
Commodities Traders Manual. Chicago: Chicago Board of Trade, 1997.
Troy, Leo, Almanac of Business and Industrial Financial Ratios.
U.S. Census Bureau. 1997 Economic Census — Finance and Insurance, Washington: GPO, 2000. Available from http://www.census.gov .