A Guide to Agricultural Commodities And Their Importance On The Global Market


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On this page we discuss different kinds of agricultural commodities, their relationship to the global economy., and the top agricultural commodity-producing countries in the world.

Agricultural commodities are staple crops and animals produced or raised on farms or plantations. Most agricultural commodities such as grains, livestock, and dairy provide a source of food for people and animals across the globe.

However, some agricultural commodities have purely industrial applications. The building and furniture industries use lumber from trees, while manufacturers in several sectors use latex from the rubber tree.

Wool from sheep provides the fabric for the clothing industry and lanolin for skin- and hair-care products.

Some agricultural commodities serve as both a source of food and an industrial ingredient. Both humans and animals consume corn, but the commodity is also an important ingredient in fuel production. Similarly, humans eat the beef of cows, while a variety of industries use beef hide, fats and bones to create products.

Why Are Agricultural Commodities Important?

Virtually every living being on the planet depends on the agricultural industry in one way or another. We eat the grains, fruits, vegetables and livestock that farmers produce; build the frames of our houses from lumber; make clothes from cotton and wool; and ride in cars with tires made from rubber.

In addition, over 1.3 billion people – nearly 20% of the global population – work in farming. In some regions of the world, such as South Asia and Sub-Saharan Africa, farming employs more people than any other industry.

The global impact of the agricultural industry is enormous. According to the Food and Agricultural Organization of the United Nations, the economic value of the agriculture industry, in constant 2010 dollars, is more than $3 trillion.

With the world population expected to climb from 7.5 billion to 11.8 billion by 2100, agricultural commodities are likely to play an even bigger role in the decades ahead.

What Are the Different Agricultural Commodities?

Agricultural commodities fall into one of six categories:

  1. Cereal Grains
  2. Oilseeds
  3. Meat
  4. Dairy
  5. Other Soft Commodities
  6. Miscellaneous Agricultural Commodities

Cereal Grains

Farmers grow these commodities asa :

  • Food source for humans
  • Food source for animals
  • Feedstock for fuels (in some cases)
Wheat Field
Wheat Field via Pixabay

The most common grain commodities include the following:

Grain commodities often serve similar purposes. For example, corn, oats and barley all function as food sources for livestock. Depending on price, farmers will choose one grain over the other.

As a result, most grain commodities have a strong price relationship with one another. Traders monitor the spread between grain prices to determine the relative values of one grain versus another.

Oilseeds

Soybeans via Pixabay
Soybeans via Pixabay

These commodities resist easy classification since they serve multiple purposes. Farmers grow them for (a) the high oil content in their seeds and (b) the meal that remains after oil is extracted:

In the case of cotton, the plant fibers have their own important market in the clothing and houseware industries. Because farmers use the meal from these crops in animal feed, oilseeds often have a strong price relationship with cereal grains.

Meat

Feeder Cattle
– Image via Pixabay

Meat commodities include (a) live animals raised for meat, hide, organs, bones and hooves and (b) cuts of meat produced during the butchering of animals:

Dairy

Cheese Stall via Pxhere
Cheese Stall via Pxhere

Dairy commodities include milk, butter, whey and cheese. Markets for these commodities date back to the 19th century when traders organized the Chicago Butter and Egg Board. Today these products trade on the Chicago Mercantile Exchange (CME).

Other Soft Commodities

Soft commodities refer to commodities that are farmed rather than mined. However, most commodity traders classify cereal grains, oilseeds, dairy and meat separately.

The remaining soft commodities all have developed and liquid global markets:

Miscellaneous Agricultural Commodities

Some commodities have well-developed global markets, but don’t fit easily into the above categories:

Here’s a summary of agricultural commodities and what exchanges they are traded on:

CommodityPrimary Uses*Contract SizeFutures Exchange
WheatFA, FP5,000 bushelsChicago Board of Trade (CBOT)
CornFA,FP, FF5,000 bushelsChicago Board of Trade (CBOT)
OatsFA,FP5,000 bushelsChicago Board of Trade (CBOT)
BarleyFA,FP20 metric tonsIntercontinental Exchange (ICE)
Rough RiceFP, FF2,000 hundredweightsChicago Board of Trade (CBOT)
CottonFA, OL 50,000 poundsNew York Mercantile Exchange (NYMEX) / Intercontinental Exchange (ICE)
Palm OilFA, FP, FF, OL25 metric tonsChicago Mercantile Exchange (CME)
SoybeansFA, FP, OL5,000 bushelsChicago Board of Trade (CBOT)
Feeder CattleFP50,000 poundsChicago Mercantile Exchange (CME)
Lean HogsFP40,000 poundsChicago Mercantile Exchange (CME)
Live CattleFP40,000 poundsChicago Mercantile Exchange (CME)
Pork BelliesFPN/AN/A
CocoaFP10 metric tonsNew York Mercantile Exchange (NYMEX) / Intercontinental Exchange (ICE)
CoffeeFP37,500 poundsNew York Mercantile Exchange (NYMEX) / Intercontinental Exchange (ICE)
FCOJFP15,000 poundsIntercontinental Exchange (ICE)
SugarFP, FF112,000 poundsNew York Mercantile Exchange (NYMEX) / Intercontinental Exchange (ICE)
LumberIU110,000 board feetChicago Mercantile Exchange (CME)
RubberIU5 and 10 metric tonsTokyo Commodity Exchange (TOCOM) / Shanghai Futures Exchange (SHFE)
WoolIU2,500 kilogramsAustralian Stock Exchange (ASX)
  • FA = Food source for animals
  • FP = Food or beverage source for people
  • FF = Feedstock for fuel production
  • OL = Food and/or industrial oil or lubricant
  • IU = Industrial uses

What Key Global Trends Impact Agriculture?

Several long-term trends could create investment opportunities in agriculture over the next two decades:

  1. Population Growth
  2. Agricultural Productivity
  3. Technology and Big Data
  4. Demand for Meat in China
  5. Global Warming

Population Growth

By 2040, the world’s population is expected to exceed 9 billion. Demographers forecast that three-quarters of the world will reside in Asia or Africa at this time.

Not only will the population increase, but people will be richer. Most analysts agree that the greatest wealth gains will be in the developing world where people will migrate from rural areas into cities. Wealthier global citizens will mean more demand for agricultural products.

Shanghai Cityscape
Shanghai Cityscape via Goodfreepictures.com

These trends could place strains on agricultural resources. Innovations in irrigation, biogenetics and land usage are among the many advances that will be needed to help feed a growing population. These innovations could produce new investment opportunities.

Agricultural Productivity

Emerging market economies have been growing at a much faster pace than developed economies over the last decade, and this trend is likely to continue. Seven countries – Brazil, China, India, Indonesia, Mexico, Russia, and Turkey – accounted for 24% of world economic output between 2010 and 2016. These countries comprised only 14% of global output in the 1990s.

However, despite these gains, productivity in agriculture is lagging badly in the developing world. A report by the Global Harvest Initiative (GHI) shows that productivity by small farmers in the lowest-income countries is growing at 1.3%. The average rate of productivity growth across all countries is 1.73%, which is below the 1.75% level needed to keep up with global demand.

To keep up with the demands of a growing world population, the agriculture sector in the developing world will need to increase its efficiency. Investors may find opportunities to invest in industries that help modernize small farms.

Technology and Big Data

Technology is one way that farms can drive productivity gains. Technology and Big Data are increasingly driving decisions by farmers. Crop monitoring technologies, apps that tell farmers the optimal time and place to plant crops and advanced DNA testing of livestock are among the many technological innovations in farming.

Modern farms will need to integrate the latest technologies into their operations in order to boost productivity and take on competition. However, in many areas of the developing and some areas of the developed world, there is a severe skills gap.

In order to bridge this gap, farms of the future will have to recruit an educated and technology-savvy workforce. Investors may find opportunities to invest both in the technology that farmers use and the human resources to help them employ it.

Demand for Meat in China

With annual spending of more than $300 billion annually, China is the largest meat consumer in the world. Meat consumption has been growing for the past two decades, and analysts expect growth of 3 to 4% annually for all proteins in the years ahead. The rising middle class in China is the main catalyst for this growth.

wholesale Meat Market in China via Publicdomainpictures.net
Wholesale Meat Market in China via Publicdomainpictures.net

This trend will have enormous implications for global agricultural markets. China will require more grains to raise livestock and may need to import them. In addition, China is planning to invest heavily in the infrastructure required to modernize production and processing plants for beef, pork, poultry and fish.

Global Warming

Gradual changes in global temperatures can increase the number of severely hot days in the growing season. These heat waves can dramatically reduce crop output and create price spikes.

Farmers are using genetics to develop more heat-resistant strains of crops.

Investments in biogenetics may benefit as a result of increases in global temperatures.

Top Agricultural Commodity Producing Countries

CommodityFlagTop Producing Country Annual Production
BarleyFlag of European UnionEuropean Union58,765 (thousand metric tons)
Cocoa Ivory coast flagIvory Coast1,449 (thousand metric tons)
CoffeeFlag of BrazilBrazil2,595 (thousand metric tons)
CornFlag of USAUnited States377,500 (thousand metric tons)
CottonFlag of IndiaIndia30,000 (1000 480 lb. Bales)
Feeder CattleFlag of USAUnited States12,448 (thousand metric tons)
Lean HogsFlag of ChinaChina54,750 (thousand metric tons)
Live CattleFlag of USAUnited States12,448 (thousand metric tons)
LumberFlag of USAUnited States357 million m³
OatsFlag of European UnionEuropean Union8,002 (thousand metric tons)
Orange JuiceFlag of BrazilBrazil1,257 (thousand metric tons)
Palm OilFlag of IndonesiaIndonesia36,000 (thousand metric tons)
Pork BelliesFlag of ChinaChina52,750 (thousand metric tons)
Rough RiceFlag of ChinaChina146,000 (thousand metric tons)
RubberFlag of ThailandThailand4,305 (thousand metric tons)
SoybeansFlag of USAUnited States17,024 (thousand metric tons)
SugarFlag of BrazilBrazil39,150 (thousand metric tons)
WheatFlag of ChinaChina126,000 (thousand metric tons)
WoolFlag of AustraliaAustralia478 (thousand metric tons)

Traders can follow the broad agricultural market by monitoring the performance of some of the main indices that track the sector.

The following agriculture indices are a good barometer for investment demand in the sector since they measure the performance of agricultural commodity futures.

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