What is a Commodity Paper?
Commodity papers are a special type of loan or advance that is made using commodities in the possession of the borrower as collateral for the transaction. In general, the lender does not take possession of the physical commodities as part of the loan agreement. Often, documents such as bills of lading, verified inventory lists, and warehouse receipts are used to establish the status of the commodities and allow the lender to prepare a commodity paper. The nature of commodities is different from many other investments, in that the commodity is a physical substance that has to be produced before it can be sold on an exchange. For example, food products and grains are raised by farmers and then stored, all in the hope that the products will sell at a good price when the time comes. The commodity paper is one of the ways that the owner of produced commodities can benefit from the stored goods prior to the point of sale. Loans and advances that are transacted with the use of a commodity pap
” Commodity papers are a special type of loan or advance that is made using commodities in the possession of the borrower as collateral for the transaction. In general, the lender does not take possession of the physical commodities as part of the loan agreement. Often, documents such as bills of lading, verified inventory lists, and warehouse receipts are used to establish the status of the commodities and allow the lender to prepare a commodity paper. . The nature of commodities is different from many other investments, in that the commodity is a physical substance that has to be produced before it can be sold on an exchange.
