By Michael Kuchar
Mankind as a race, has progressed mightily over the years. From the agricultural days of yesteryear, to the industrial revolution, and the technological advancements of today, humanity has experienced evolution on a massive scale. One thing that has not changed though, is our dependence on livestock and agriculture. Who would have thought that agricultural commodities too, stand as a medium to reap profits from! Some agricultural commodities stand as a source of food for people and animals around the world, while others exist solely for industrial applications. Grains, livestock and dairy are rich sources of food, which are necessary for survival.
Latex from rubber trees, lumber from trees, and wool from sheep, find their application for industrial purposes, and are sold as a variety of different products. Over 20% of the world’s population find themselves in the farming trade (Nearly 1.3 billion people!), and the global impact of the farming industry is gigantic. According to the Food and Agricultural Organization of the United Nations, the agricultural industry’s economic value is upwards of $3 trillion. Now is the best time to trade in agricultural commodities. Here are a few of the best soft agricultural commodities you can trade in.
What is a Soft Commodity?
As a soft commodity is regarded as any product that is farmed, rather than mined. Some products are difficult to include in this categorization, hence commodity traders generally classify cereal grains, oilseeds, meat and dairy separately.
What is a Futures Contract? Where are Soft Commodities Traded?
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Futures Contracts are agreements which entail one party agreeing to buy a specific quantity of a commodity, and take its delivery on a pre-decided date. The selling party must agree to provide the commodity in discussion, on the date being agreed upon. Soft commodities can be traded on Exchanges, in a specific quantity.
Among the most popular exchanges for soft commodities include – (CME) Chicago Mercantile Exchange, (CBOT) Chicago Board of Trade, (ICE) Intercontinental Exchange, (NYMEX) New York Mercantile Exchange, (TOCOM) Tokyo Commodity Exchange, (SHFE) Shanghai Futures Exchange, and (ASX) Australian Stock Exchange
Popular Soft Commodities –
The most common cereal grains include the likes of – Rough Rice, Barley, Oats, Corn, and Wheat. These commodities are grown as a food source for humans and animals, as well as a feedstock for certain fuels, in some cases. Barley, oats, and corn serve as good food sources for livestock, and farmers will choose to buy one grain over the other depending on its price.
As a result of this, most cereal grain commodities have a strong price relationship with each other. Traders often monitor the spread existing between the prices of these cereal grains, to determine the relative values of one cereal grain, with respect to the other.
Among the most common oilseeds are Soybeans, Palm Oil, Cotton and Canola. Farmers generally grow oilseeds for a variety of purposes. Oilseeds have high oil content in their seeds, and provide for a hearty meal as well, or have industrial applications, once the oil has been extracted.
For example, when it comes to cotton, its plant fibres are extremely important in the clothing and houseware industries. Other oilseeds, on the other hand, serve as a rounded meal for livestock, once oil has been extracted from their seeds. This renders a strong price relationship between oilseeds, and cereal grains.
Meat commodities include the likes of live animals raised for their meat, hide, bones, organs and hooves, as well as cuts of meat produced during the butchering of livestock. Feeder Cattle, Live Cattle, Fish, Chicken, Pork Bellies and Lean Hogs, are among the many meat commodities.
Among the most popular dairy products include milk, butter, cheese, and whey. The markets for these products days well back to the 19th century, when traders first organized the Chicago Butter and Egg Board. As of today, these products are traded on the Chicago Mercantile Exchange (CME).
There are several other products, like Sugar, Cocoa, Coffee, and Frozen Concentrated Orange Juice, which find wide application all over the world, and are sold vastly.
Population Growth
According to research, the world’s population is expected to exceed 9 billion, by 2040. Demographers have come to the conclusion that about three-fourths of the entire world’s population, will reside in either Africa, or Asia, at the time. Not only will there be a substantial rise in population, but people will be richer as well. Developing countries with developing regions will experience the greatest boom in wealth, with people migrating from rural areas to cities, and great development ensuing in rural regions. Wealthier people will correlate to an exponential rise in the demand for agricultural products, as does the rise in population correlate to the same.
A rise in population, and decreasing rural regions could strain agricultural resources, and the need of the hour would be great innovation in the fields of irrigation and biogenetics. Lang usage will have to be optimized in order to cater to the larger agricultural demands, and to feed an enormous population. Trading in soft commodities will be humongous at that point of time, and their prices will be much, much higher than they are now. 20% of the world’s population is involved in some form of farming as of today, and by 2040, the number of investment opportunities, and people involved in agriculture and farming will be much higher. Start investing in the right soft commodities today, and build for the future.
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