Everything a Farmer Should Know About Commodity Trading
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Commodity exchange is one of the how does agricultural commodity trading work important economic terms that plays a vital role in the global economy by providing an organized marketplace for the exchange of various commodities such as grains, sugar, cocoa, livestock, oil, gas, metals, and others.
Generally, commodities are marketable goods and raw materialsusually traded in bulk. Commodities can be classified into four main groups:. The main characteristic of commodities is that they are interchangeable with other goods from the same group. In addition to that, commodities are uniform in their quality. Commodity market works just like any other market; it can be a physical or virtual place how does agricultural commodity trading work commodity trading occurs.
However, the commodity market is characterized by its strong regulations and rules. The trading and exchange of commodities work through legal entities, known as commodity exchanges. Commodity exchange is an association, company, or how does agricultural commodity trading work legal corporate body which provides an organized marketplace for trading in commodities.
Worldwide there are many commodity exchanges specialized in operating with certain commodities. The Chicago Board of Trade is one of the major and most known commodity exchanges operating with agricultural commodities such as corn, soybeans, wheat, oats, and rice.
In case the price for certain commodity changes, the contract obligates both parties to buy or sell a commodity at a predetermined price.
In other words, trading in futures contracts serves rather for price speculations and risk management, than for the actual exchange of goods. After all, there are many farmers who use commodity exchange either to sell their products or as a risk management tool that will help them face price fluctuations.
If you want to learn more about the agricultural market and other interesting terms such as market prices, futures contracts, and hedging, keep reading our articles and master your market knowledge. Toggle navigation Get started. Ines Marjanovic Agronomy Expert. In our previous blog posts, we wrote about the beauty and the challenges of growing crops.
Besides various types and techniques of crop production, we also presented all activities a farmer needs to perform in order to achieve successful farming. Up till today, the AgTech revolution has experienced quite the bloom.
From precision farming, drones, and geo-mapping to robotic harvesters and self-driving tractors. All this is just a needle in a haystack in countless farm technologies that are tak