What Are Agricultural or Soft Commodities?

Agricultural commodities are often referred to as ‘Soft Commodities’ are staple crops and animals produced or raised on farms or plantations or free-range.

 Most soft commodities such as grains or cereals, livestock, and dairy supply a source of food for people and animals across the various countries around the globe.

 What are the main Uses of Agricultural Commodities?

 Most agricultural commodities have entirely industrial applications. Examples include wood and rubber.

The construction, charcoal, energy, boat building, and furniture industries use lumber from trees, while manufacturers in several sectors such as the health care sector, use latex from the rubber tree.

 Wool from sheep supplies the necessary fabric for the textile industry and lanolin is used to produce skin- and hair-care products.

Often agricultural commodities serve as both a source of food and as industrial ingredients.

 Both humans and animals consume corn. It is also processed into different final products such as cereals or animal feed. This soft commodity is also an important ingredient in fuel production. Ethanol and Methanol are popular products and can be used for propulsion.

Various diets also make way for the beef of cows, while a variety of industries use beef hide (leather), fats, and bones to create products.

Why Are Agricultural Commodities Important?

 Close to every living creature on the planet depends on the agricultural industry in one way or another.

We eat grains, fruits, vegetables, and livestock that farmers produce.

We also build the frames of our roofs and houses from lumber and make clothes from cotton and wool and ride in cars with tires made from rubber and seats made of leather.

Over 1.35 billion people – almost 20% of the global population – work in the agricultural or farming industry.

According to ourworldindata.org, “As countries develop, the share of the population working in agriculture is declining. While more than two-thirds of the population in poor countries work in agriculture, less than 5% of the population does in rich countries. It is predominantly the huge productivity increase that makes this reduction in labour possible”.

 There is no doubt that the global impact of the agricultural industry is enormous.

 According to global statistics as of December 2020, the global agriculture market is expected to grow from $9602.79 billion in 2020 to $10181.92 billion in 2021 at a compound annual growth rate (CAGR) of 6%.

 The agriculture market is expected to reach $13133.95 billion in 2025 at a CAGR of 7%.

What Are the Different Agricultural Commodities?

Agricultural commodities fall into six categories:

  • Cereal
  • Grains
  • Oilseeds
  • Meat
  • Dairy
  • Other Soft Commodities

 Miscellaneous Agricultural Commodities

 The most common grain commodities include:

  • Wheat
  • Corn
  • Oats
  • Barley
  • Rough Rice
  • Grain

Commodities often serve similar purposes.

Corn, oats, and barley essentially used in animal feed, function as food sources for livestock.

Depending on price, region, soil, climate, and other factors, farmers will choose one grain over the other.

 As a direct result of this, most grain commodities have a strong price relationship with one another.

Traders watch the spread between grain prices to find the relative values of one grain versus another.

 Oilseeds:

 Oilseeds are commodities that challenge easy classification since they serve multiple purposes.

Farmers grow them for

(a) the high oil content in their seeds and

(b) the meal that stays after the oil is extracted.

 In the case of cotton, plant fibers have an important market in the clothing and houseware industries.

Since farmers use the meal from these crops in animal feed, oilseeds often have a strong price relationship with cereal grains.

Meat:

Meat commodities include

 (a) live animals raised for meat, hide, organs, bones, and hooves and

 (b) cuts of meat produced during the butchering of animals:

 Dairy commodities:

 Dairy Commodities include milk, butter, whey, and cheese.

Markets for these commodities date back to the 19th century when traders organized the Chicago Butter and Egg Board.

Today these products trade on the Chicago Mercantile Exchange (CME) as well as other prominent indices.

 Other Soft Commodities

 Soft commodities refer to commodities that are farmed rather than mined.

 Most commodity traders classify cereal grains, oilseeds, dairy, and meat separately.

 The remaining soft commodities all have developed and liquid global markets:

  • Cocoa
  • Coffee
  • Frozen Concentrated Orange Juice (FCOJ)
  • Sugar
  • Miscellaneous Agricultural Commodities

 Some commodities have well-developed global markets, but don’t fit easily into the above categories:

  • Lumber
  • Rubber
  • Wool

 Examples of types of commodities and their exchanges

  • Wheat FA, FP 5,000 bushels Chicago Board of Trade (CBOT)
  • Corn FA, FP, FF 5,000 bushels Chicago Board of Trade (CBOT)
  • Oats FA, FP 5,000 bushels Chicago Board of Trade (CBOT)
  • Barley FA, FP 20 metric tons Intercontinental Exchange (ICE)
  • Rough Rice FP, FF 2,000 hundredweights Chicago Board of Trade (CBOT)
  • Cotton FA, OL 50,000 pounds New York Mercantile Exchange (NYMEX) / Intercontinental Exchange (ICE)
  • Palm Oil FA, FP, FF, OL 25 metric tons Chicago Mercantile Exchange (CME)
  • Soybeans FA, FP, OL 5,000 bushels Chicago Board of Trade (CBOT)
  • Feeder Cattle FP 50,000 pounds Chicago Mercantile Exchange (CME)
  • Lean Hogs FP 40,000 pounds Chicago Mercantile Exchange (CME)
  • Live Cattle FP 40,000 pounds Chicago Mercantile Exchange (CME)
  • Cocoa FP 10 metric tons New York Mercantile Exchange (NYMEX) / Intercontinental Exchange (ICE)
  • Coffee FP 37,500 pounds New York Mercantile Exchange (NYMEX) / Intercontinental Exchange (ICE)
  • FCOJ FP 15,000 pounds Intercontinental Exchange (ICE)
  • Sugar FP, FF 112,000 pounds New York Mercantile Exchange (NYMEX) / Intercontinental Exchange (ICE)
  • Lumber IU 110,000 board feet Chicago Mercantile Exchange (CME)
  • Rubber IU 5 and 10 metric tons Tokyo Commodity Exchange (TOCOM) / Shanghai Futures Exchange (SHFE)
  • Wool IU 2,500 kilograms Australian Stock Exchange (ASX)

 *Legend for Primary Uses in the above:

 FA = Food source for animals

FP = Food or beverage source for people

 FF = Feedstock for fuel production

 OL = Food and/or industrial oil or lubricant

 IU = Industrial uses

 What Key Global Trends Impact Agriculture?

Many long-term trends could create trading opportunities in agriculture over the next two decades such as

  • Population Growth
  • Agricultural Productivity
  • Technology and Big Data
  • Demand for Meat in China
  • Global Warming

Population Growth By 2040, the world’s population is expected to exceed nine billion. Demographers forecast that three-quarters of the world will live in Asia or Africa at this time. Not only will the population increase, but people will be richer.

Wealthier global citizens will mean more demand for agricultural products.

 These trends could place strains on agricultural resources.

 Innovations in irrigation, biogenetics and land usage are among the recent advances that will be needed to help feed a growing population.

These innovations could produce new trading opportunities.

 Agricultural Productivity

Emerging market economies have been growing at a much faster pace than developed economies over the last decade, and this trend is likely to continue.

It is surprising that Brazil, China, India, Indonesia, Mexico, Russia, and Turkey – accounted for 24% of world economic output between 2010 and 2016. These countries formed only 14% of global output in the 1990s.

However, despite these gains, productivity in agriculture is lagging badly in the developing world.

The average rate of productivity growth across all countries is 1.73%, which is below the 1.75% level needed to keep up with global demand.

To keep up with the demands of a growing world population, the agriculture sector in the developing world will need to increase its efficiency. Traders may find opportunities to guess on industries that help modernize small farms.

 Technology and Big Data Technology is one way that farms can drive productivity gains.

Technology and Big Data are increasingly driving decisions by farmers.

 Crop monitoring technologies and apps that notify farmers of the optimal time and place to plant crops as well as advanced DNA testing of livestock are among the various technological innovations in farming.

Modern farms will need to integrate the latest technologies into their operations to boost productivity and take on the competition.

Traders may find opportunities to guess on both the technology that farmers use and the human resources to help them employ it.

Demand for Meat in China with annual spending of more than $300 billion annually.

 China is the largest meat consumer in the world. Meat consumption has been growing for the past two decades, and analysts expect growth of 3 to 4% annually for all proteins in the years ahead.

GMO Genetically Modified Organisms

Farmers are using genetics to develop more heat-resistant strains of crops. Investments in biogenetics may benefit because of increases in global temperatures.

Furthermore, GMOs are not safe, and no long-term data is available to accurately verify their benefit.

Lots of GMOs have been engineered to withstand the direct application of herbicide and/or to produce an insecticide.

The Top Agricultural Commodity Producing Countries

Country Annual Production

  • Barley European Union 58,765 (000 metric tons)
  • Cocoa Ivory Coast 1,449 (000 metric tons)
  • Coffee Brazil 2,595 (000 metric tons)
  • Corn United States 377,500 (000 metric tons)
  • Cotton India 30,000 (1000 480 lb. Bales)
  • Feeder Cattle United States 12,448 (‘000 metric tons)
  • Lean Hogs China 54,750 (‘000 metric tons)
  • Live Cattle United States 12,448 (‘000 metric tons)
  • Lumber United States 357 million m³
  • Oats European Union 8,002 (‘000 metric tons)
  • Orange Juice Brazil 1,257 (‘000 metric tons)
  • Palm Oil Indonesia 36,000 (‘000 metric tons)
  • Rice China 146,000 (‘000 metric tons)
  • Rubber Thailand 4,305 (‘000 metric tons)
  • Soybeans United States 17,024 (‘000 metric tons)
  • Sugar Brazil 39,150 (‘000 metric tons)
  • Wheat China 126,000 (‘000 metric tons)
  • Wool Australia 478 (‘000 metric tons)

Where else can I sell my Agricultural Soft Commodities?

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