Agricultural Commodities Definition
Below please find a definition of “Agricultural Commodities”
Agricultural Commodities: (First published on Commodities and Futures Guide.com) An Agricultural Commodity can be defined as grain, livestock, poultry, fruit, timber or any other items produced from agricultural activities. The general price level of an agricultural commodity, whether at a major terminal, port, or commodity futures exchange, is influenced by a variety of market forces that can alter the current or expected balance between supply and demand. Many of these forces emanate from domestic food, feed, and industrial-use markets and include consumer preferences and the changing needs of end users; factors affecting the production processes (e.g., weather, input costs, pests, diseases, etc.); relative prices of crops that can substitute in either production or consumption; government policies; and factors affecting storage and transportation.
Worldwide, there are 48 major commodity exchanges that trade over 96 commodities. The trading of commodities consists of direct physical trading and derivatives trading. Most trading is done in futures contracts, that is, agreements to deliver goods at a set time in the future for a price established at the time of the agreement. Futures trading allows both hedging to protect against serious losses in a declining market and speculation for gain in a rising market.
Some of the most well known agricultural commodities that are traded are; Corn, Mini-Corn, Wheat, Mini-Wheat, Soybean, Mini-Soybean, Soybean Meal, Soybean Oil, Soybean Crush, Oats, Rough Rice, Milk Class III, Milk Class IV, Nonfat Dry Milk, Deliverable Nonfat Dry Milk, Dry Whey, Butter, Cheese Spot Call, Random Length Lumber, Wood Pulp, Live Cattle, Lean Hogs, Feeder Cattle, and Frozen Pork Bellies.
The commodities markets have seen an upturn in the volume of trading in recent years. In the five years up to 2007, the value of global physical exports of commodities increased by 17% while the notional value outstanding of commodity OTC derivatives increased more than 500% and commodity derivative trading on exchanges more than 200%. The notional value outstanding of banks’ OTC commodities’ derivatives contracts increased 27% in 2007 to $9.0 trillion.
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