Agricultural commodities are immensely diverse, and products such as coffee, livestock, pork bellies, and wheat continue to grow in demand and importance globally. Investors improve their chances of building wealth when they understand market cycles.
Natural cycles of life, such as the weather, often influence the markets. Even expert reports teach how to profit by investing in (actually off)the weather.
Anyone can make money by speculating on warmer temperatures than usual in Sacramento, California. Now, let’s assume that does not move your portfolio needle as much; you could choose to bet on how many inches of snowfall there might be in Boston next winter. How about the strength of hurricanes in the Gulf of Mexico?
Weather, Price, and Commodities
These are not fictitious examples? Instead, they are known as weather-futures contracts and allow traders to speculate on temperature changes. These weather futures are important investments, and you may trade them via exchanges such as the Chicago Mercantile Exchange in the US. You will almost never find these if you fixate on the Nasdaq.
Weather is significant in determining the prices for essential agricultural commodities such as corn, soybeans, wheat, and pork bellies. By default, volatile US grain prices depend heavily on the weather. However, that volatility has been fuelled lately by non-commercial speculation activity.
According to a recent CoBank report, the weather would be the primary force driving grain prices over a two-month period in 2021. In the second quarter, corn, soybean, and wheat prices soared to hit a 9-year high until speculative or non-commercial buyers stepped back from their positions. This move lowered their exposure as fears of rogue inflation grew weaker.
Trading Agricultural Commodities
Corn, soybeans, and other grains are essential food and feed supplies for people and livestock. What is primarily interesting is that prices for these commodities are susceptible to prevailing weather conditions in growing areas at critical times during the development of the crop. Economic conditions are also an essential factor that affects demand and, therefore, price.
Corn, soybean, and wheat-growing regions have output far less crop due to drought and excessive heat. The July weather was predicted to be critical for corn during pollination, whereas August was one to watch for soybean and wheat development. Therefore, the yearly grain run is henceforth not for the feeble investor.
In the case of animal protein, pork has been one of this year’s peak-performing commodities. Lean hog futures hit $122 in mid-June, for instance.
Commodities are unlike stocks in that they have their own dedicated exchanges where traders and speculators may converge. They are, however, a more significant business than most people realise as some of the bigger enterprises on the Standard & Poor’s index are significant players in the commodities industry.
The role of the weather in food production has become more important than at any other time in history. Climate change has necessitated climate-smart agriculture to explore climate change, a realignment of food production systems, and food security.
The availability of commodities such as coffee, soybean, wheat, and pork will depend greatly on how farmers can manipulate their production and, by implication, their prices. That’s why the weather has become essential in controlling the prices of these commodities.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only.