Agricultural Markets

Agricultural commodities feed the world and supply raw materials for biofuels, textiles and industry. Their prices depend on weather, planting decisions, global trade, government policy and the slow cycle of growing seasons. Agricultural futures are some of the oldest exchange traded contracts: grain futures have traded in Chicago since the mid 1800s. Today, the main venues are CBOT (part of CME), ICE US and markets in Brazil, China, Europe and elsewhere.

Categories#

What moves agricultural prices#

Key reports#

The US Department of Agriculture (USDA) publishes reports that frequently move markets.

Seasonality#

Northern Hemisphere grain prices often carry weather premiums during planting and summer growing seasons, then face pressure from harvest supply in autumn. South American harvests, which run on the opposite calendar, increasingly influence global prices. See Seasonality in Commodities.

Daily price limits#

Many agricultural futures have daily price limits: the maximum move allowed in a session. If a market hits its limit and stays there ("limit up" or "limit down"), trading can effectively stop at that price, making it hard to exit. Limits often expand after limit moves. See Contract Specifications.

Who trades agricultural futures#

• Farmers hedge future harvests by selling futures. See Hedging.
• Food companies, millers, feedlots and ethanol plants hedge input costs.
• Grain merchants manage physical trade flows.
• Funds and speculators trade trends, weather and spreads.

Risks#

• Weather shocks that cause sudden moves.
• Policy shocks: for example, Russia's 2010 grain export ban or India's restrictions on rice and wheat exports.
• Limit moves that prevent exits.
• Disease in livestock, such as African swine fever affecting hog markets.

Frequently asked questions#

What are agricultural commodities?#

Farm products traded on futures markets, including grains, oilseeds, softs such as coffee and sugar, and livestock.

What is the WASDE report?#

The USDA's monthly World Agricultural Supply and Demand Estimates, which forecasts global production, use and inventories for major crops.

Why are agricultural prices so sensitive to weather?#

Because crops are grown once a season and supply cannot quickly adjust, so weather damage during key stages can significantly reduce production.

Next, study the largest US crop in Corn.

Sources#

• USDA, WASDE report