Trading Agricultural Commodities: A Guide On Where and How to Trade Them

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This guide covers different ways you can trade agricultural commodities, reasons you may consider trading them, along with a list of regulated brokers that offer various agricultural instruments.

Traders have the choice to speculate on and trade agricultural commodities in several ways, namely, derivatives like:

There are also futures exchanges that offer agricultural commodity futures contracts like the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE).

As to which broker is best for you to trade an agricultural instrument depends on your location and individual trading needs. Read on to learn more background information on agricultural commodities in general, or skip ahead to see which brokers are available in .

3 Reasons Why You Might Trade Agricultural Commodities

Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.

The agricultural industry is active and developing, adopting new technologies and scaling to meet demands for both quality and cost. Here are three reasons you may consider speculating on agricultural commodity prices.

Innovative Technologies for Efficient Farming

Technology grows exponentially, and this isn’t different for the agricultural sector.

In 2019, one of the top alternative cryptocurrencies, Cardano, announced a partnership to support Ethiopian coffee farmers in further decentralizing their trading process.

Early Entry With Developing Countries

Many developing countries are still in their early days of agricultural adoption. This can be seen as an opportunity for traders to enter a developing market with potential.

That said, the potential of the agricultural market should be carefully considered with global supply-demand dynamics in mind.

Weather Fluctuations

Due to severe weather instabilities, many agricultural commodities are more volatile than usual. Traders, especially day traders, who seek such volatile products may find agricultural instruments attractive.

Of course, high returns come with equally high risk, so trading strategies are a smart way to prepare for an entry based on volatility due to weather.

Where Can You Trade Agricultural Commodities?

If you are looking to start trading agricultural commodities, here’s a list of regulated brokers available in to consider.

These brokers offer several types of agricultural instruments for traders.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 73.90%-89.00% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Ways to Trade Agricultural Commodities

There are many different agricultural trading instruments. We explain how each of these work so you can have a better idea of what is best suited for your needs.

Agricultural Commodiy CFDs

CFDs are one of the most popular derivatives products. When you buy an agricultural CFD, for example, a CFD for wool, you are betting on the difference in price between the time when you purchased the contract and the time of close.

When you purchase the contract, you can either go long (expect a price increase) or short (expect a price drop).

Alongside a CFD trading guide, we have trading guides on several agricultural CFDs like Cocoa, Coffee, Corn, Lumber, Rice, Soybeans, and Sugar.

IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.

Agricultural Commodity Options

Like CFDs, agricultural options are a form of derivatives trading. The difference is that when you buy purchase an options contract for a product like barley, you pay what’s called an ‘options premium’.

This fee covers your (the contract holder’s) ability to pull out of the contract any time before a specified date which you agree on with your broker before completing the purchase.

To learn more about options trading, see our options trading guide.

Agricultural Futures

Agricultural futures work a lot like options, with the exception that futures contracts are designed to oblige both the broker and trader to complete the trade.

Some popular futures exchanges include:

Agricultural Shares & Indices

There are hundreds of companies that are either directly related to or are closely influenced by agricultural commodities. Due to a major global role, agricultural commodities heavily influence stock prices, and vice-versa.

Many brokers offer shares as such.

There are also several agricultural indices traders can opt-in for. Indices provide traders with an overview of how a particular set of agricultural markets are performing.

Learn more about stock brokers and what they offer.

5 Leading Agricultural Indices

Here are five agricultural indices that allow traders to speculate on agricultural commodity prices, mostly on U.S exchanges.

IndexLast SaleDescription
S&P GSCI Agriculture Index
This sub-index of the S&P GSCI provides investors with a reliable and publicly available benchmark for investment performance in the agricultural commodity markets.
Dow Jones – UBS Grains Sub Index Total Return
Index composed of three futures contracts on grains traded on US exchanges.
iPath Bloomberg Agriculture Total Return
Index composed of seven futures contracts on agricultural commodities traded on US exchanges.
iPath Bloomberg Livestock Total
Index composed of two livestock commodities contracts (lean hogs and live cattle) traded on U.S. exchanges.
E-TRACS USB Bloomberg Commodity
The first investable commodity index to provide direct exposure to food. The index tracks the collateralized returns generated from a basket of 11 agricultural and livestock futures contracts spread across three constant maturities from three months up to one year.

What Are The Top Agriculture Trading Resources?

Traders can find additional information on trading in agriculture from the following sources:

United States Department of Agriculture (USDA)

The Economic Research Service (ERS) of the USDA provides comprehensive information on agricultural commodities including production, consumption, and import and export statistics.

The ERS also offers forecasts and analyses for each agricultural sector and publications and reports on a vast array of agriculture-related topics.

Food and Agricultural Organization (FAO)

This United Nations agency has over 194 member states and a presence in over 130 countries. The FAO website publishes reports and statistics on a broad spectrum of agricultural topics.

The FAOSTAT database is an excellent tool for analyzing and comparing agricultural data using dozens of different variables (e.g., countries, production, trade, prices, land use, etc.)

Industry Trade Groups

Industry group websites are a great way to learn about different sectors of agriculture. These organizations publish timely content on issues that impact their sectors (e.g., trade, government regulations, conservation initiatives, etc.).

National Pork Producers Council, National Corn Growers Association, National Cotton Council of America, and International Rubber Study Group are just a small handful of the organizations that advocate for their sectors.

Agweb.com

AgWeb.com, powered by Farm Journal, has comprehensive current content on agriculture topics. Agweb aggregates news stories, market data and government reports on the sector.

It also publishes market analyses and discussions on weather, crops, agribusiness, machinery, livestock, and technology.

CME Group

This American financial company operates futures and options exchanges including the Chicago Board of Trade (CBOT) and the New York Mercantile Exchange (NYMEX).

The CME publishes daily volume and open interest reports for agricultural commodities, educational courses on agricultural commodities trading, trading tools, brokerage resources, and much more.

FAQs

Here are some common queries about agricultural trade and the commodities produced.

What is considered an agricultural commodity?

An agricultural commodity is a type of staple crop or animal product that is farmed on an agricultural site cultivated for the purpose of its production. Some examples of agricultural commodities include oats, palm oil, sugar, as well as live-stock like feeder cattle and lean hogs.

What is the most popular agricultural product?

The demand for agricultural products varies from region to region. For instance, the Black Sea region is a high-demand consumer of wheat, while North America is the largest consumer of beef (see live cattle). On the other hand, sugar consumption seems to be relatively stable worldwide.

What are the benefits of industrial agriculture and trade?

Industrial agriculture counts for far faster rates of food production. With increasing awareness over health, industrial agriculture is also leveraging emerging technologies to keep up with the consumer demand for quality and cost. Leveraging such technologies would difficult on smaller-scale farms.

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