How & Why Commodity Prices Move Up and Down
Are you looking to invest in commodity trading but are hesitant to do it because of the complexity of this market? If so, that’s understandable – many would agree that this is an unpredictable market. But once you understand the factors that cause commodity prices to fluctuate and how you can use the crop weather calendar, the market becomes easier to follow.
It’s true; commodity prices can move up and down. However, when equipped with the reliable, up-to-date data offered by DTN, you will know when to expect price changes and react appropriately when they do change.
What causes commodity prices to move up and down
Commodities are primary goods in their raw or only partly refined states. Some examples of commodities are corn, fruit, sugar, cocoa, gold, or oil.
First, a look at how commodity prices change and fluctuate. These fluctuations can happen due to several factors:
The geopolitical landscape and global macroeconomics
This first factor refers to economic, social, and political events that affect international relations. This factor often manifests in international economic disputes, social unrest, and military conflicts. In turn, this can cause difficulty in producing and transporting certain commodities. The resulting supply shortage can lead to an increased price.
Trade market conditions
An example of market conditions would be when price charts provided to investors cause a wave of sudden buying or selling, which affects commodity prices.
Supply and demand
Supply describes the number of goods a producer offers on the market at a certain period and price. Demand describes the number of goods that customers are ready to buy at a certain period and for a certain price.
When inventories exceed demand, the prices inevitably will be lower. When demand is greater than supply, prices rise.
You may understand the basics of supply and demand, but what factors are involved when talking about agricultural supply? How can you know when supply will be affected? Let’s take a look at some factors that affect supply, causing commodity prices to change.
What affects agricultural supply
Many factors can affect the agricultural supply. The more you, as an investor, know about these, the better equipped you will be to enter this market and be successful. Let’s look at a few of these factors:
Pathogens such as fungi, bacteria, and viruses can reduce crop yields, causing great loss in the quality of the crop or killing the crop entirely.
Pests can be an insect as big as a locust or as small as an aphid. They can exist above the ground, such as a stink bug, or underground like corn rootworm. Regardless of size or location, they all have a devastating effect on their hosts and are a major cause of loss in crops and crop yields.
Weather can include everything from everyday weather patterns to climate change to extreme weather events.
Perhaps the most important factor of those listed above is the weather. It affects the agricultural supply and other farming aspects. Weather influences every facet of farming, including irrigation, fertilizer application, crop growth, and controlling pests and diseases.
Ongoing climate change plays a part in crop production as it influences temperature, humidity, precipitation, and the interactions between plants and pests. Changes in the weather can cause stress to the crops, which makes them vulnerable to disease. Extreme weather can cause flooding, drought, hail, or frost, all of which can cause damage to crops.
Farming based on weather data is crucial to successful and profitable production. Ensuring success is why farmers use something called the crop weather calendar.
How farmers use the crop weather calendar
What is a crop weather calendar? Simply stated, this is a guide that provides information on the average weather each week to farmers. It enables the farmer to determine when weather conditions are favorable for sowing, germination, flowering, transplanting, and harvesting.
A farmer needs to know the history of the crop and weather requirements for its successful growth. Weather forecasters use this same crop weather calendar to prepare weather warnings for specific areas and the crops grown there. It can even enable them to give proper warnings according to the current phase of the crop.
The crop weather calendar also makes it possible for farmers to know when and how to protect their crops from disease and pests.
Farmers need to understand and use the crop weather calendar to succeed in their line of work. But what does this have to do with you as an investor?
What the crop weather calendar can do for you
Imagine if you could predict weather patterns and the effect these would have on your crop investment. For example, if you know that the crops you have invested in are about to be affected by drought, you can take the necessary steps to cut your losses.
When equipped with the correct data, you can see when a change in weather or other factors will result in a shift in supply and demand that would then affect commodity prices. DTN ProphetX provides you with reliable analytics with its gold-standard data management system.
This program is designed for your success as a commodities trader. Equipped with real-time data and high-level analysis you can trust the commodities market is no longer unpredictable to you.
The commodities market is a market is one of the oldest trading markets in the world and provides essential goods worldwide. Stay ahead of your competitors by diversifying your portfolio with the help of DTN ProphetX.