Commodity Paper

You may have written one in an econ class at some point. But we're talking about a different kind of paper here.

If you get a mortgage, you are getting a loan backed by collateral: your house. Using collateral (like a house for a mortgage) represents fairly common practice in the lending business. Ideally, a lender wants something to back up the loan, some item of value to provide security that the loan will get paid back.

Commodity paper is a specific form of collateral. It's a loan backed by some amount of a commodity...a bunch of barrels of oil, a silo full of grain, etc. The commodity provides the collateral for the loan.