Agriculture is the most important occupation in many parts of the globe. A large number of the population depends on this industry for their livelihood. The prices of these agricultural commodities constantly keep on changing based on a number of factors. Few commodities are completely dependent on the market forces for the determination of their price. This causes the prices to remain unstable or we can say that they keep on changing. One such field is agricultural commodity market prices. Read on further to understand it in more depth.
Agricultural Commodity Market
In simple terms, the agricultural market is a place where trade of various commodities that are categorized as hard and soft commodities is done. The hard and soft commodities consist of gold, rubber, oil, wheat, corn, coffee, and sugar respectively. The price fixation completely takes place on the market forces of demand and supply. Other than that, there are various methods through which trade takes place. Let us understand the working of the agricultural commodity market. And the various factors on which the agricultural commodity market prices are fixed.
How Does The Commodity Market Work?
The ware market works only like some other markets. It is a physical or a virtual space, where one can purchase, sell or exchange different horticultural items at current or future date.
Similar to a stock, anyone can invest in an agricultural commodity via the commodity bourses.
India has six commodity exchanges National Commodities and Derivatives Exchange (NCDEX), National Multi Commodity Exchange, Multi Commodity Exchange (MCX), Indian Commodity Exchange, ACE Derivatives Exchange and the Universal Commodity Exchange. These companies conduct various trading activities related to agricultural commodities.
Factors Affecting Agricultural Commodity Market Prices
Over the long course, the fundamentals (supply and demand) play a striking role. However, agricultural commodity market prices are affected by amongst other notable factors too. Apart from the market forces, these are some of the factors that directly affect the commodity market.
Population And Income
As economies develop, urbanise and industrialise, they typically consume increasing amounts of commodities.
However, as economies grow richer you typically see smaller rises in commodity demand for a corresponding rise in income. The population in countries like China and India is continuously growing at a high speed which leads to more demand and supply in commodities. Certain agricultural commodities are now demanded in a much rapid way because of the attraction of customers toward healthy products in order to stay fit and increase the number of years in their life span.
Meanwhile, the type of commodities consumed also changes, For example, as economies grow wealthier citizens generally consume more protein-based foods. This eventually increases the demand for livestock and the crops used to feed them.
Technology And Cost
The cost of manufacturing a commodity plays a vital part in determining agricultural commodity market prices. Commodity generation costs comprise raw materials, research and development, insurance, licensing fees, wages, taxes and every other cost acquired by real-world commodity businesses.
In the longer-term technological progress may lead to greater yields which reduce the marginal cost of production. Though it is said, with the use of technology labour is reduced, but this in turn increases the cost of production. As the installation charges are pretty high and one also has to pay for the maintenance charges. Many countries have now dropped the labour intensive technique and have gone for much greater technological equipment that have increased the profits of the companies.
Government policy And Producer Organisations
Few governments subsidise agricultural commodity market prices, especially energy and agricultural ones, in the name of granting a privilege to their poorest citizens.
Cheaper interest rates result in consumers borrowing money to support investment, which then indirectly increases the demand for commodities. The companies have to follow the rules and regulations.
Organizations of commodity producers also regulate production cuts to push agricultural commodity market prices higher. One of the most popular models is the Organisation of Oil Exporting Countries (OPEC).
Unless the weather is precisely accurate agricultural yields will suffer.The weather can affect other commodities too. Hurricanes, Droughts, Floods and other natural disasters can cause major fluctuations in agricultural commodity market prices. Moreover, the weather patterns also affect the productivity of a particular year and also of a particular region. But no person has control over the weather conditions. Therefore, it is completely natural.
Working Your Way Around Agricultural Commodity Market Prices.
Diversification of capital is one of the most useful commodity trading hacks in the market. Risks are going to happen even for an experienced and alert trader. So the commodity trader must maintain a good balance of rewards and risks by not keeping all the eggs in the same basket. Understanding the differences between cyclic and non-cyclic commodities also becomes very crucial while handling commodity trading. studying the markets and taking bullish or bearish positions accordingly. Following tips and tricks related to each specific commodity along with following basic trading, fundamentals are vital for a trader.
1. Direct Investment
This is the simplest and easier way to invest in the agricultural commodity market. All you need is a demat account and you can easily invest. But before that, market information is really important.
2. Individual Stocks
An experienced trader who has invested before too can opt for this option i.e buying individual stocks. These stocks cover each and everything right from the fertilizer to the water pump.
Futures are something that should be opted by a really experienced person. Who is completely able to understand the cycles and patterns of the agricultural market. These are really risky in nature but at the same time profitable too. Thus invest wisely.
Operating through the fluctuations of agricultural commodity market prices is one of the most important skills to attain for a trader to succeed in the trading arena. Investments are subjected to risk, thus, before investing take full knowledge of the market.
For more information feel free to contact PL Global Impex Pte Ltd.