The concept of agricultural trade can be traced back to the Romans, who cultivated crops solely for trade. Agricultural trading and exchange have evolved into a multinational enterprise encompassing a diverse range of resources since ancient times. The modern agricultural market is enormous, encompassing much more than food importation and exportation. Livestock, raw materials, fibers, and stimulants are some of the other items that can be traded.
To satisfy global food demand, agricultural markets buy and sell food products, mainly cereals, vegetables, and fruits. Cattle, sheep, pigs, chickens, and horses are often traded for food, entertainment, or other purposes such as the manufacture of leather. Agricultural markets also buy and sell raw materials like lumber and bamboo. Fiber, which includes hemp, silk, wool, and cotton, is another common agricultural product that people trade. Tobacco and alcohol, for example, account for a significant portion of the agricultural industry.
Developing countries’ economies are frequently fueled by their ability to export agricultural products. Although agricultural trade may provide opportunities for poorer countries, some of these countries lack the infrastructure to distribute goods effectively. Furthermore, if high tariffs are on their exported products, they will find it difficult to compete. As a result, international agricultural trade, especially for small-scale or rural farm operations, can be difficult in developing countries.
Agricultural trade is becoming more global as a result of technological advancements and international trade agreements. It can be difficult for buyers and sellers in the industry to keep track of price volatility while still being vigilant about relevant trade regulations. Countries are taking measures to support policies that encourage fair trade. However, sustainable agriculture practices as trade are becoming more global.
Many countries, for example, develop their agricultural trade policies. Typically, these programs aim at establishing and expanding domestic and foreign markets for the country’s agricultural products. Some countries provide subsidies to farmers who grow specific agricultural products. Sustainable growing practices education and training can also be part of a country’s overall trade program. Furthermore, several countries aim to increase trade with other countries by negotiating deals that remove or minimize agricultural import and export taxes.
By concept, hedging is the transfer of risk. This generally refers to the ‘price’ risks with the volatility and movement up or down in the price of maize, soybeans, and wheat, or cattle and hogs, among other commodities. When prices are high, farmers often don’t have stored grain or marketable livestock on hand. Farmers and producers can hedge their bets by using financial contracts to keep in prices during higher price times.
Financial derivatives can help commercial merchants, manufacturers, and consumers of grains and meats minimize both physical (market or supply) and price risk. The flexible futures and options contracts are the primary risk management tools applicable to investors in the agro markets.
Investing In Agro-Commodity
To make money from agriculture, you don’t have to be a farmer or sell agricultural products. Agricultural commodity investing is becoming popular in recent years and is becoming increasingly prominent.
- Investing in agriculture entails funding the cultivation, processing, and distribution of food and crops.
- As the world’s population grows and land becomes scarcer, interest in agriculture production as just an investment has risen in lockstep with the world’s population.
- From farm REITs to agricultural ETFs to commodities markets, there are many ways to invest indirectly in agriculture.
Investing in an agriculture real estate investment trust is the nearest an investor can come to holding a farm without having purchased one (REIT). Farmland Partners Inc. (FPI) and Gladstone Land Corporation are two examples (LAND).
Usually, these REITs buy farmland and then rent it to farmers. Farmland REITs have a lot of advantages. For one thing, they provide much more diversification than purchasing a single farm, as they enable an investor to own stakes in numerous farms spread across a large geographic region.
Ag ETFs are a good way for investors to get various exposure to the agriculture sector through exchange-traded funds (ETFs). For example, the Market Vectors Agribusiness ETF (MOO) provides exposure to a diverse range of companies by making investments that generate at least 50% of their revenue from agriculture. The Teucrium Soybean ETF is the best-performing agricultural commodity ETF, based on production through 2020. (SOYBEAN).
Investors should carefully evaluate each ETF’s management fees. Also, they should evaluate the output of the index that the fund monitors, just as they should for any other sort of ETF.
Mutual Funds For Agriculture
There are also mutual funds for the livestock and farming sectors. If this appeals to you, you can first decide if the fund invests in agriculture-related companies or commodities. Bear in mind that, in addition to agriculture, many of these funds have exposure to other industries. So, if you’re looking for a pure farming or agriculture fund, you’re probably better off looking at other asset groups.
More speculative investors can be drawn to the concept of investing directly in commodities to profit from market price fluctuations. If you can get commodities exposure by buying futures contracts, there are also a variety of ETFs and exchange-traded notes (ETNs) that offer a broader range of commodities exposure.
Some ETFs and ETNs provide investors with exposure to a single commodity (such as corn (CORN), livestock (COW), coffee (JO), grains (GRU), cocoa (NIB), and sugar (SGG), while others provide exposure to a set of commodities. The Invesco DB Agriculture ETF (DBA) invests in maize, wheat, soybeans, and sugar futures as an example of such.
Agriculture is much more investor-friendly than most people think. And, it has been a popular investment destination for centuries. Agriculture grew up with the futures market, and many agro stocks can be traced back to a period when shooting each other with handguns was a common way to resolve a dispute. For many investors, the agro sector’s maturity and the variety of ways to invest in it, combined with new concerns about global food consumption, make it a compelling choice.
PL Global Pvt Ltd is a Myanmar-based company that trades agricultural products all over the world. The company’s goal is to establish itself as a market leader. The company’s most valuable asset is a team of seasoned experts in charge of market analysis, customer service (both current and new), and pricing strategy.