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What are agricultural commodities?

by , 26 May 2014

You might have heard the term agricultural commodities bandied around. What exactly is an agricultural commodity? How do investors trade them? And can you trade agricultural commodities in South Africa? Let's take a closer look at the ins and outs of agricultural commodities…

A definition of agricultural commodities

Let’s start with a quick look at what a commodity is. A commodity simply describes ‘real stuff,’ John Stepek in Money Week explains. Commodities range from precious metals to base metals to food stuffs.

Agricultural commodities, or ‘soft’ commodities, include things like:
  • Grain;
  • Cotton;
  • Salt;
  • Sugar;
  • Soy beans;
  • Coffee beans; and
  • Rice.
These commodities trade on different exchanges around the world. These commodity exchanges use futures and options contracts to buy and sell the goods.

Agricultural commodities traded on the Chicago Mercantile Exchange

One of the most well-known commodity exchanges is the Chicago Mercantile Exchange, says Wikipedia. It lists contracts for agricultural commodities including:
  • Live cattle;
  • Butter;
  • Softwood pulp;
  • Dry whey; and
  • Pork bellies.
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Trading agricultural commodities in South Africa

In South Africa, the Johannesburg Stock Exchange has an agricultural derivatives market. The market offer both futures and options contracts for grains. Grain producers can use the market to help them hedge against price risk.

It’s not just grain producers than can trade these. Anyone who wants to can. They just need a suitable account with a stockbroker who deals in agricultural commodities.

And that’s not the only way you can trade agricultural commodities. You can also trade exchange traded notes (ETNs) on them

Standard Bank currently offer ETNs on agricultural commodities such as corn and wheat. An ETN is an instrument listed on the JSE which tracks the performance of agricultural commodities.

So there you have it, what agricultural commodities are.

What are agricultural commodities?
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