Just like most commodities, the determinants of agricultural commodities is based on the demand and supply. However, it is not as easy as it sounds when it comes to determining these commodities since they’ve got their own unique features. As a trader or a planning to be involved in this kind of industry, it is important that you should be aware of some key factors that impact the agricultural commodity basis.
Demand Patterns
One of the most common determinants of agricultural commodities is the demand pattern. It is a key factor determining the price. Basically, the demand for agricultural commodities is somehow scattered compared to other commodities. While it is obvious that the movement of the prices will vary depending on the demands, the supply itself impacts the prices in the long term.
Supply Patterns
As mentioned, the supply can make an impact in the long run and tends to have a concentrated supply pattern. Wheat prices and corn prices, for example, is largely dominated by the Philippines, while castor and mentha prices are dominated by India. The widespread supply and demand structure will be your basis.
Rise Of Other Options Or Alternatives
The world is constantly changing and many kinds of businesses these days are looking for other options and alternatives. In short, several industries are looking for new ways to meet the changing demand pattern and therefore, the supplies must meet the demands. The rise of options and alternatives is another key when it comes to agricultural commodities determinants. You probably witnessed this happen in several countries whereas, there has been a major shift in demand patterns such as soybeans prices pattern.
Trade And Transport
The trade and transport can make a big difference to the pricing of agricultural commodities. When it comes to the most agricultural products, the supply must be concentrated in the overall procedure. If the supply must be delivered overseas while the world market oil price hike is inevitable, this affects the products not because the supplies could not meet the demands, but rather based on the expense of the transport.
Warehousing Facilities
Another determinant factor is the warehousing facilities of the agricultural commodities. In fact, it can also make a big difference when it comes to the pricing of the products. Keep in mind that most of the agricultural commodities are known as soft commodities which means that most of these are perishable goods. The quality of the warehousing facilities services can be extremely crucial that makes the movement of the figures seamlessly.
The Government
Finally, is the government. There are some cases that different countries impose restrictions on futures trading. This is quite common in Asian countries such as India. You might even notice that the country itself intervenes and banning future trading in the agriculture trading which is politically sensitive up to this point. While other countries are similarly opposing and monitor accumulation open interest which can affect the prices of the products.
The agricultural commodities prices and trading should not only be determined by the numbers and figures based on the demand and the supply. In this kind of business, you should know that there are other unique factors that can affect the pricing and understanding these is critical to any traders, buyers, and brokers.
Commodity Basis 