Agricultural commodities are not necessarily the focus of many investors looking for new investment opportunities. Those who want to invest in commodities usually start by looking at precious metals such as gold and silver or crude oil.
Even a glance at your own breakfast table can help you discover many new investment opportunities.
Agricultural raw materials are renewable resources whose consumption will most certainly increase. Nevertheless, investing in agricultural commodities is not that easy to understand and carries a high risk for investors.
What counts as agricultural commodities?
Raw materials that are renewable and not mined are referred to as agricultural raw materials. The producing countries of agricultural commodities are often poor and the commodities are mostly imported by the rich countries.
Therefore, demand increases in a country with its prosperity and wealth. This regularity cannot be observed exclusively in the case of so-called stimulants such as coffee or sugar. Economists can therefore identify emerging economies very reliably on the basis of demand for agricultural commodities.
The group of agricultural commodities includes a whole range of products:
– Construction timber
– Live cattle and beef cattle
– Lean pig
– Orange juice concentrate
– Palm oil
– Soybeans, soy flour, soy oil
Demand will increase
As in all markets, supply and demand determine prices in the agricultural commodities market. Nevertheless, prices for agricultural commodities in particular are still dependent on other factors. For example, global climate and weather conditions, but also explicitly in the producing countries, as well as seasonal cycles play a major role and crop failures can quickly lead to a shortage of raw materials. Equally influential are the political conditions in the producing countries.
Despite all this, it can be safely assumed that the demand for agricultural raw materials will increase in the future. The most important factor behind the increase in consumption is the strong growth in the world’s population.
At the same time, acreage for agricultural commodities is dwindling worldwide. Prices for agricultural commodities will therefore tend to rise in the future.
Estimation of agricultural commodity prices difficult for investors
Even though the trend is to expect higher prices for agricultural commodities in the future, it is difficult for investors to assess the price curves. Prices are not determined exclusively by supply and demand, but depend on various other factors. Overall, they are therefore subject to very strong fluctuations.
Agricultural commodities – interesting addition to the portfolio
Agricultural commodities and thus their underlying indices are generally quoted in U.S. dollars. Investors are subject to currency risk in addition to price developments that are difficult to assess and enormous price fluctuations.
Investments in agricultural commodities should therefore be included in the portfolio as a supplement if possible. Then such a plant can be very interesting. Anyone interested in investing in agricultural commodities should always keep a close eye on the situation on the markets and specifically look for the right time to enter.