A commodity is something whose market value arises from the owner's right to sell rather than the right to use. Example commodities from the financial world include oil (sold by the barrel), wheat, and even pork-bellies. More modern commodities include bandwidth, RAM chips and (experimentally) computer processor cycles, and negative commodity units like emissions credits.
In the original and simplified sense, prior to the advent of globalization, commodities were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer are considered equivalent. It is the contract and this underlying standard that define the commodity, not any inherent quality of it as a living organism as such. One can reasonably say that food commodities, for example, are defined by the fact that they substitute for each other in recipes, and that one use the food without having to look at it too closely:
Wheat is an example. Wheat from many different farms is pooled. Generally, it is all traded at the same price; wheat from Joe's farm is not differentiated from wheat from Jane's farm. Some uniform standard of quality must necessarily be assumed, leading to different pools: one say for genetically modified wheat, and one for not. Failures to match the consumer's assessment of risk, usefulness for some purpose, can lead to lower prices or the necessity of dividing the market into different pools - a very major issue in agricultural policy.
If the division into pools is effective, markets for trading commodities can be very efficient; Like all markets, they quickly respond to changes in supply and demand to find an equilibrium price. Producers often attempt to 'de-commodify' their products by branding them. Branding attempts to make similar products from different producers more distinguishable. This stategy can often lead to higher prices for the items than would be produced in a commodity market - making a product market. This is the logical consequence of splitting into one pool per brand name.
Globalization has largely obsoleted this older "thing-based" definition, as the property right in that "thing", and standard of quality expected, and right to sue if it is not met, tends to vary widely across even the most developed nations. Accordingly there is now more emphasis on contract, and on insurance, and currency dynamics in modern commodity markets.
Some economists advise redefining every commodity and product market as a service market, wherein state inspections, market regulation, property rights enforcement, and other services previously assumed under classical economics to be the domain of the state, could be charged for. If this advice were followed, the term commodity would still apply in human life analysis, or narrow domains such as relatively safe food goods, or industrial inputs (oil, screws, wireless spectrum) where quality is more or less standard globally, and there is little risk to life of any failure.
See Commodity markets, trade, property.