Question

explain briefly the process of producing a commodity.

Answer 1

ALL products of labour made for exchange are called commodities. Lenin said: “A commodity is, in the first place, a thing that satisfies a human want; in the second place, it is a thing that can be exchanged for another thing.” A commodity has two properties: use-value and value. To become a commodity, a thing should first of all possess use-value. For instance, clothes are used for warmth and a machine tool is used in production. The fact that two different commodities can be exchanged is because there is something in common between them. Every commodity item is created by human labour and is the crystallization of human labour without any distinction. A certain amount of human labour is embodied in every kind of commodity. The value of a commodity is the human labour in general congealed in it. Therefore, what is common to, all commodities is value. The magnitude of the value in a commodity is determined by the amount of labour-time socially necessary for producing it. In exchanging commodities according to value, people actually exchange their own labour. This is why Marx stressed that a commodity is not just a material thing, but a definite social relation between people concealed beneath a material wrapping.

Answer 2

The production of commodities can be a risky enterprise at times. The success or failure of commodity producers often depends on price economics. When total production costs are lower than market prices producers are profitable. However, when market price drops below production cost it becomes a losing proposition. Commodity prices are cyclical therefore; producers must adjust their strategy according to the position in the price cycle. As an example, when commodity prices rise producers will mine for lower grade ores, those with higher production cost. Additionally, when prices are high producers will hedge in order to lock cash flow for profitable mining operations for the future. No one, even the most experienced mining companies, knows what the future may hold. A strategy during times of high prices helps miners to secure the future viability of mining projects during inevitable downturns. When prices fall and the commodity cycle turns bearish, the producers will often mine for higher-grade ores looking to lower total production costs as a strategy to combat lower prices and survive for better times. In the case of dominant commodity producers with healthy reserves of both cash and commodities, lower prices can present an opportunity. These players may use lower prices to their advantage. Lower prices often cause high cost producers to go out of business as their enterprises become uneconomic.

This affords the opportunity for the dominant producers to sell more at lower prices in order to secure increased market share. As prices are cyclical, increasing market share during difficult times may yield rewards once prices rebound.

There are two types of commodity production. Primary production is where the producer is in the business of producing a specific commodity.