Agriculture is an occupation which increases the revenue of the company. A large population is involved in farming as farmers or traders. The first group grows the crops whereas the second group consists of traders that sell these crops in the market so that the requirements of the customers are fulfilled. Buying agricultural commodities can be a confusing thing. Hence, one has to understand the basics of what agricultural commodities are and should know the various terms and concepts in order to successfully buy agricultural commodities.
What are agricultural commodities?
Agricultural commodities are routine food produced by the farmers in their fields. They consist of grains, cereals, vegetables, fruits, etc. that are consumed by users across the world. Every single person depends on agriculture directly or indirectly because food is an essential part of a human’s life and it is the main component in terms of survival.
The characteristic of commodities is that they are exchangeable with other goods of the same group. The commodities are also uniform in quality. The meaning of the sentence is that commodities which are in the same group and quality grade are very similar and it is hard to find a difference between their producers.
How to buy or invest in agricultural commodities
Buy ETFs exposed to futures
The first method through which one can buy agricultural commodities is buying ETFs (exchange traded funds) exposed to futures. A great example for this is the power share DB agriculture fund (DBA). It looks for changes, whether positive or negative, in the level of the DBIQ diversified agriculture index excess return plus the income from the fund’s holding of treasury securities less the fund’s expenses. The index is a rules-based index that consists of futures contracts on some of the most liquid and widely traded commodities. The ETF tracks the following commodities- corn, soybeans, sugar, live cattle, lean hogs, cocoa, wheat, and cotton.
The next method is to buy futures and the commodities may include soy, corn, wheat, oranges, sugar, and the list never ends. This option would be the best for those who are familiar with the agricultural cycles.
Buy stock tracking ETFs
The next one is to buy stock tracking exchange traded funds. The market vectors agribusiness ETF looks to replicate as closely as possible before fees and expenses, the yield performance of the market vectors agribusiness index. The index is considered to track the overall performance of companies involved in agri-chemicals, fertilizers, seeds and traits, farm equipment, livestock, plantations, and trading of agricultural commodities.
Buy individual stocks
This strategy imposes that along with buying individual futures, one should aim at experienced investors or those who subscribe to agricultural investment letters. Agricultural stocks cover everything right from fertilizer mines to water pump distributors. So there is no shortage of companies to own shares in.
Legendary investors like to invest in agriculture directly. This can help you partake in the explosive gains that occur when the market turns. Investors that are looking for startup opportunities should consider one continent in mind. The case for buying agricultural commodities has never been stronger. Although the price of commodities may or may not fall in the short term, the long term fundamentals dictate that prices must rise.
Benefits of trading in agricultural commodities
Stabilize prices of agricultural commodities
Commodity trading helps the marketer to stabilize the prices of agricultural products by acting as a link between future and spot prices. They have a direct relationship and hedging can help mitigate the risks associated with extraordinary price fluctuations. As seasonal variations of prices are minimized, farmers and traders benefit because of stable prices.
Develop efficient hedging and speculation strategies
Commodity trading also helps the producer to develop efficient hedging and speculation strategies. For example, there is a marked change in the future prices because of existing spot prices. In such cases efficient hedging strategies can work. Also if changes in future prices impact existing spot prices, an efficient speculation strategy can work. Thus, according to the current trends in the market, one can find future prices.
Accurate market-oriented price
Agricultural commodities trading can help arrive at an accurate market oriented price of agricultural commodities. This is really important as the minimum support price fixed by the government and the wholesale prices fixed by farmers are not in sync with existing market patterns.
Trading in agricultural commodities provides an opportunity to both retail and corporate investors to diversify their portfolios. Trading in agricultural commodities is becoming as easy as trading in conventional stocks and securities. One has to open a DEMAT account and a trading account and complete the requisite formalities. For making the utmost use of your investments in agro commodities, industry experts suggest that one should take into account the supply and demand based factors along with seasonal and weather related variables.
The bottom line
Agricultural commodities can increase the economy of any country if trading takes place effectively. If not it can reduce the income of the country and lead to many other problems. The consumer’s need commodities on an everyday basis. So traders have to ensure that they get the best quality products whenever need be. There are many companies that conduct trading activities in terms of agricultural commodities.
One such company is PL Global that is working in the field of trading industry with more than 80 years of experience. The owner of the company Mr. Naresh Kumar Dinodiya, with his expertise and guidance has led the company to greater heights with dedication and hard work. The employees of the company work hard every single day to bring the world together by dispersing surplus resources around the globe. However the company is situated in Singapore. And is conducting trading activities all around the world.
So, get the best services from the best company PL Global Impex Pte Ltd. We hope that you have found the relevant information through this article about agricultural commodities.