PL Global Impex
Agricultural Commodity Trading Companies

Agricultural Commodity Trading Companies

Introduction

Agriculture is a major occupation in many parts of the world. It is the main source of income for a large population. Agriculture is the art of cultivating plants and feeding millions of people so that they can survive in this civilization. It is an important business for several traders. And it is generally referred to as agricultural commodities trading. But before learning more about agricultural commodity trading companies, let us first understand the meaning of agricultural commodity trading. 

Meaning of Agricultural Commodity Trading

Agricultural commodities that are bought and sold or rather imported and exported between many countries by the companies are known as agricultural commodities trading. Not all commodities are cultivated in a single country. Hence they need to buy certain crops or grains from other countries. This give and take process refers to trading and involves all kinds of commodities. 

 

Agricultural commodities are divided into two categories:

Soft commodities:

Soft commodities are grown or cultivated and include commodities like sugar, wheat, coffee, soybean, fruit, and livestock. They are a major part of the future market. Soft commodities are useful for farmers wishing to lock in the future prices of their commodities and for hypothetical investors seeking a profit. 

Hard commodities:

Hard commodities are natural resources that are mined or extracted from the ground. They consist of commodities like gold, rubber, silver, oil, etc.

Trading in Agricultural Commodities

One can start trading in agricultural commodities through a futures contract. It is a legal agreement to buy and sell something at a predetermined price and at a specified time in the future between the parties that are not known to each other. A trader can also participate in the fluctuations of agricultural commodities through Exchange-traded notes (ETNs) and Exchange-traded funds (ETFs).

Stabilize Prices of Agricultural Commodities

Agro commodities trading helps in stabilizing prices by acting as a link between the future and spot prices. The Spot price is the local cash price for immediate delivery of the commodity, whereas the future price is the cost of future delivery of the commodity. They have a direct relationship between each other and hedging can help mitigate the risks associated with extraordinary price fluctuations. Farmers or producers can benefit from stable prices because of the reduction in the seasonal variations of prices.

Agro commodities also help to develop efficient hedging and speculation strategies and it tries to limit the risk in financial assets. For instance, if there is a noticeable change in the future prices because of the existing spot prices. You can formulate an effective hedging strategy. But, if the changes in future prices affect the existing spot prices you can formulate an effective speculation strategy. Thus, according to the current trends in the market, it is easy to find out the future prices.

Agricultural Commodity Trading Companies

Market Oriented Prices

Dealing with agricultural commodities can help arrive at an accurate market-oriented price of agricultural products. This is of utmost importance, as at times the MSP (Minimum support price). Government fixes It and the farmers fix the wholesale prices. They are out of synchronization with the existing market patterns.

Trading in agricultural commodities provides an opportunity for both retail as well as corporate investors to diversify their portfolios. Dealing with agricultural commodities is as easy and simple as trading in conventional stocks and securities. One has to follow a few simple steps by opening a Demat and trading account and completing the requisite formalities. For making most of the investments in agricultural commodities, industry experts suggest taking into account supply and demand-based factors along with other seasonal and weather-related factors. 

Commodity Exchange

Commodity exchange is one of the most important terms and plays a vital role in the global economy by providing a well-organized marketplace for the exchange of various soft and hard commodities.

It works just like any other market and can take place both physically as well as virtually. The agricultural commodity market is generally highlighted by its strong regulation and rules. All the trading works through legal entities, which is a commodities exchange.

 

An Agricultural commodities exchange is a legal and professional association, company, or legal corporation that provides an organized marketplace for trading commodities. Many commodity exchanges specialize in operation within certain commodities in different parts of the world. 

 

There are two ways in which you can trade commodities. They include:

Trading in the spot market:

In this market, the commodities take place in trading immediately when setting a deal, either for cash or other goods just like barter exchange. The price fixes keeping in mind the current market prices. However, the delivery occurs immediately or after a few days. 

Trading in the futures market:

Trading in the futures market means that instead of exchanging the goods, the buyer and seller exchange the contracts which obligate them to buy or sell the commodity on a specified date in the future or at a  particular price. 

 

In case the price of any commodity changes, the contract commits both parties to buy or sell a commodity at the predetermined price. Trading in futures contracts serves for price speculations and risk management rather than for the actual exchange of goods. Farmers will succeed if they understand the key processes in the market.

The Bottom Line

The Agricultural commodity trading market helps in discovering future prices based on the current prices and trends. Farmers can benefit from it and earn more revenue. Selecting the right broker for trading in agricultural commodities is very important. One must always remember to concentrate on being a stockbroker. They can provide seamless trading platforms to deal across multiple commodity exchanges. Hence one needs to research it in-depth and read all the necessary reports and policies. 

 

A leading export and import trading firm that has experience of more than 80 years is P L Global Impex Pte Ltd. They conduct various infrastructure-based projects and have a well-established network of industries. 

 

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