You don’t have to farm to enjoy the riches of a good harvest. Investing in agricultural commodities allows you to benefit from the bounty of a plentiful season without doing all the labor yourself. There are several options for diversifying your portfolio to include agricultural commodities. Several commodity trading apps can help you with your portfolio research.
The DTN ProphetX is a tool that helps agricultural producers and commodity traders make informed choices with high-impact results. Learn more and see how it can help you invest soundly with the data-backed analysis you can trust.
Standard Agricultural Commodities
Agricultural commodities are “staple crops,” raw materials, and saleable goods grown or produced on farms.
These can include:
These commodities are the end product of an entire industry’s worth of time, equipment, land, money, and effort. The United States Department of Agriculture (USDA) sets commodities standards and grades. The standards mean that corn grown in Ohio is valued at the same rate as corn produced in Arkansas. When you invest in agricultural commodities, like grains, you invest in the crop itself, not individual farms or ranches.
What Is Commodity Investing?
The most commonly traded financial assets are stocks and commodities. How are they different? Commodity trading is an investment in actual, physical products or raw materials like sugar or oats. A “stock” basically represents ownership in a company and an investment in its future.
Commodities are based mainly on supply and demand, whereas stocks depend on the financial health of a business. Typically, commodities are short-term investments with a quicker return, whereas stocks are assets held over long periods to maximize return. Investing and trading in agricultural commodities can happen in a few different ways.
Trading in Commodities
There are three different ways to invest in commodities. They are called Exchange Traded Funds (ETFs), Agricultural Mutual Funds, and Futures Contracts.
An Exchange Traded Funds (ETF) trades like any other stock. However, they are a collection (or basket) of multiple stocks. You can purchase a stock share in an ETF as you would a publicly traded business. An agricultural ETF includes companies whose revenue comes from at least 50% of agricultural sources. There are also ETFs specifically for agricultural commodities like corn, wheat, soy, or sugar.
Agricultural Mutual Funds allow investors to invest in many different stocks for a lower price. A mutual fund is a pool of investors who collectively invest in stocks, money markets, or other securities, including commodities. With the mutual fund option, you benefit from buying into a portfolio that a professional firm manages. The risk is lower because you are collectively investing in several stock options.
Futures contracts are the most common way to trade in commodities. A futures contract is essentially a legal agreement to purchase or sell a commodity asset within an agreed-upon time frame in the future. The buyer uses leverage to buy a higher quantity of commodities, predicting that the asset’s value will have increased once the contract ends.
Once the contract ends, you sell the shares and reap your return. It is essential to understand that both global supply and demand and seasonal availability impact these investments. Futures contracts originated in the agricultural industry to balance market prices and hedge, or lower, investors’ potential risk.
Invest In The Future
Now is the time to explore your portfolio options with commodities investment. With a significant return over time, commodities are one of the more reliable places to put your money in the market. Here are three reasons to put your money where your mouth is (literally).
A Reliable Market
The global population is predicted to rise exponentially over time. According to the University of Oxford’s “Our World In Data” research program, by 2050, the world’s population is set to increase to 9.7 billion people. According to the United Nations, 1 out of 9 people experiences food scarcity globally. It is clear that with so much depending on the global production of food and crops, the agriculture industry is vitally important.
With a population that will keep increasing until the end of this century, investing in food security is vital for current and future generations. All humans need to eat, which makes agriculture a secure investment.
A Prime Environment for Innovation
Due to climate change, population growth, and food scarcity, the agricultural industry is full of present and future innovations. Technology is only increasing in the day-to-day methods of crop production.
New data management tools, biotech, robotics, and other technological advancements make farming more efficient and sustainable. Where innovation goes, money follows. Now is the time to secure your investments in commodities, which will continue to be a vital asset in your portfolio now and overtime.
Long And Short Term Investments
With the stock market, there are long-term and short-term investments. Agricultural commodities are a wise investment in both cases. As the demand rises over time, investments in agriculture assets and commodities will increase. Over a few decades, you can see an investment increase significantly in value.
For short-term investments, like futures contracts, you need to have a keen awareness of the historical patterns of the agricultural market’s fluctuation. Tracking the selling patterns, weather forecasts, and market conditions are essential for making short-term investment plans pay off.
Choosing A Commodity Trading App
Watching the commodity market trends and keeping an eye on global weather patterns is essential for commodity trading. Having access to real-time data and analytics takes investing in commodities to the next level. Following annual market trends is easy with access to up-to-date data and analytics. Our commodity trading and data-management app DTN ProphetX has all this and more, including data from the United States Department of Agriculture (USDA), to assist you in making concise purchasing decisions.
Learn more about how DTN can help you invest and trade with impact. Visit our website and find out how DTN ProphetX can keep you ahead of your competitors.