Agricultural Commodities: All You Need to Know
If you are thinking of investing in agricultural commodities, there are a few things you need to know. At Kimon International, we have developed a global reputation as an agricultural commodity trading company, and we are glad to pass on our knowledge to others in the agricultural commodity community.
With this in mind, let’s take a look at everything you need to know about agricultural commodities before getting started.
What are Agricultural Commodities?
There is some confusion about what actually constitutes an agricultural commodity. An agricultural commodity includes any animal or crop grown or raised on farmland. These commodities vary from grains to livestock. They even include dairy products such as milk and eggs.
It is a mistake, however, to see agricultural commodities as non-processed products used for either human or animal consumption only. Though most agricultural products provide essential food and food ingredients to the world, agricultural commodities also include non-food products essential to industrial and manufacturing sectors.
For example, trees grown on a plantation are used as timber. This timber is an essential material for everything ranging from construction to furniture manufacturing. Likewise, products such as latex from rubber trees, wool from sheep, and leather or fur from other animals, are all used in various industries.
Plant crops like chamomile are grown both for making tea and as organic ingredients in skin and haircare products. Herbs like lavender are also grown and used for aromatic purposes or as an oil for incense and candle making.
The list goes on and on. The bottom line is that agricultural products are essentially anything that can be grown or raised, including plants and livestock.
Why are Agricultural Commodities Important?
Commodities thrive or decline based on the demand from the public. The great thing about agricultural commodities is that they are used to feed billions of people around the world. Without agricultural commodities, the world would starve. This means that trading agricultural commodities is both a positive thing to do for our fellow human beings and a lucrative, high-demand endeavour.
On top of feeding the world, a staggering 26.7% of the world’s population are involved in farming these agricultural commodities. That is over 2 billion people, with nearly 900 million directly employed across the world’s 570 million farms directly. In Africa, 53% of the population are involved in agricultural produce, showing how much some regions rely on agriculture.
If we did not trade in agricultural commodities, there would not be enough food to feed humanity, and many would no longer have employment. This would significantly increase poverty and starvation.
Trading in agricultural commodities is a win-win. You help feed and employ people, while your finances grow.
What is the Agricultural Commodities Index?
If you are thinking about joining us on our agricultural trading journey, it is helpful to know some key terms. Of these, understanding what an agricultural commodities index is, will be most useful to you.
A commodity index is a collection (basket) of commodities traded via trading exchanges. Each index incorporates a plethora of related products. The relative value of these commodities is computed by averaging a selection of the products and their market performance. The overall performance of the index represents the financial health of the market. The resulting figures allow investors to decide whether to invest in stock within that index or not.
By using an index, an investor simplifies the investment process by being able to invest in an entire market. For example, there are several agricultural indexes. Each one covers many related products. An investor could look then at the performance of the Butter Index and see that butter is in a heathy position. They then would decide to invest in that entire market.
Investors are able to trade easily by using an index of similar agricultural commodities. There are indices for almost every type of agricultural commodity. Indices also cover specific regions such as the US Dry Whey index, for example. As an agricultural trading company, Kimon International is uniquely placed to help investors and producers get the most from these indices.
The Top Agricultural Commodities in 2019
Like any investment area, commodities and products go in and out of fashion. Sometimes they are in demand and at other times they are not. While agricultural commodities are more robust and in demand than other commodities, they still fluctuate in price. To keep you on the right track, let’s take a look at a small selection of top agricultural commodities in 2019:
- Nitrogen fertilizer performed well throughout 2019. An example of this is CF Industries Holdings, whose revenue grew from $1.3 billion to $1.5 billion. The nitrogen fertilizer sector’s performance is especially remarkable considering flooding and cold weather issues. These challenges were side-stepped with higher prices and increased demand.
- Food demand has continued to grow rapidly throughout 2019. As food demand increases, so too does the need for farming equipment. Companies such as Deere & Company, which manufactures farm equipment, posted sales of $10.04 billion in Q3 taking advantage of this.
- Speaking of food growth, with sugar taxes being implemented in many countries, sweeteners and other sugar alternatives are highly in demand. One ingredient for these is corn. Companies like Archer Daniels Midland, converts corn to sweeteners. As well as processing soy and making oils from agricultural commodities, this demand for corn has pushed the company’s annual revenue above $64 billion.
- Avocados continue their remarkable growth as a staple food product. In the US alone, consumption of this healthy super food has grown 8% each year. Between 2008 and 2019, avocado grower Calavo Growers tripled its sales. This trend looks to continue.
- As farmers demand for healthy land to grow their crops increases, companies are benefiting from producing and selling nutrients for said crops. For example, potash and phosphates are performing well, both of which are key ingredients in popular crop nutrients. This is the beauty of agricultural commodity trading – wholefoods and ingredients are equally as lucrative.
These are just some of the most compelling agricultural commodities, there are many more, which our experts will be more than happy to help you with.
About Kimon International
Kimon International brings food producers, marketers, manufacturers and investors together. As a leading agricultural trading company, Kimon International promotes profitable and sustainable trading using innovative market analysis. Providing both trading and supply chain management expertise to our partners, we offer effective and exciting ways to invest in agricultural commodity prices when most profitable.