Health care and technology are seeing growth and investors are looking to cut on risks that are associated with traditional sectors that may experience a pull back. Agriculture commodity is seeing a fall recently especially during 2015 with factors like bleak economic scenario in China, the high dollar and excess supplies due to innovative agricultural practices. The past has it that commodity prices have been in the green most of the time so adding a non-correlated asset is a wise decision. The reason to add commodities to your portfolio is to straighten the volatility in the stock market.
In the United States, everyone is aware of the oil scenario; it was all over the place. There is no denying the fact that grains are important to Americans. The fall over the past few years cannot be discarded. Soybeans were down by 13%, corn by 8% and wheat by 19% over the last year. The report from the USDA World Agricultural Supply and Demand Estimate (WASDE) has it this has added to the already slow agriculture sector. Though, the report showed a record harvest the prices of soybeans, wheat and corn plummeted in August.
Traders have to understand the pulse of the market before making an investment in commodities. It is important to master the art of investing and selling contracts. It should be practiced with one or more agricultural products. PowerShares DB Agriculture is the most popular ETF where investors can buy stakes in agricultural commodities. You can trade this under symbol DBA. It can help track popular commodity index. It may be noted that DBA has plummeted 13.8% seeing a slide. The shares have slid over 33% over the past 4 years. Remember that with the burgeoning population food is the most basic commodity and there is always a possibility of recovery sooner or later.
The commodity prices are difficult to predict. When the weather is good, there is excess supply and when it is the contrary the yield is mediocre. In the former there will be excess supply and in the latter case, the price will be high. It is predicted that 2015 will have a reduced yield due to wet summer and limited plantation. It can be a problem for local farmers with grain prices on the rise giving commodity traders an opportunity to make some quick money. When grain cost is the low, the investors can turn to livestock.
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Are you on a lookout for massive gains despite the fact that the agricultural commodity costs have been dropping? The dropping prices provide buying opportunities, and this is the reason that the profit potential is growing. The global economic slowdown has ceased the economic progress and the commodity costs reflect that we are recoiling along, the base of a recessionary cycle. The demand for the agricultural commodities has diminished, and the demand for the commodity will recover as the global economy starts to recover. When this recovery happens, the prices of the agricultural commodities will skyrocket to great levels.
There are many commodity traders who recognize that opportunity and they are now planning to re-enter the market. A few of the commodity traders enjoy the popularity and respect that has been bestowed on the co-founder of Quantum Fund, Jim Rogers along with George Soros. They retired in the year 1980, and they have been witnessing a growth of 4,200 percent in a decade. Rogers recognized and also announced the Super cycle commodity market. He is also focused on the agricultural commodities and also predicts that he will make use of agriculture more than he has taken from others in the past.
Most people missed the major moves that were made by the valuable metals and energy commodities in the last decade. The reason is most folks ran away from the dropping metal and energy prices in the past. However, the falling prices are nothing but buying opportunities for the successful traders. However, it is quite unlikely that you will find someone claiming that the commodity prices are nearly high. Most traders admit that the prices could drift lower. The global demand for food might increase and decrease as people modify their budgets due to the economic downturns from time to time. However, the overall food demand continues to increase as the population increases.
The global population has increased more than double from 3 billion in the year 1960 to now. The population has been growing, and the arable land that is available for farming has been reducing as the farmlands have been destroyed and transformed into commercial and residential real estate lands. This practice is increasing to meet the requirements of the increasing population. The rising food demand and the reduction in the farmland availability have resulted in higher food prices. All the agricultural commodities will witness a substantial price increase as the global economy starts to recover. However, the agricultural commodity should see great gains owning to the fact that they are behind the energy and metal commodities.
Also Read How Long Will the Corn Prices take to Recover?
In the recent weeks, the market gyrations have driven down the prices of several traditional investments and most commodities. In the earlier times of the market chaos, the stock market investors were advised not to panic, but to wait for the recovery of the prices. This advice is proven to be prudent as the values have come back quickly after the market crashed over after 30 years. If your question is if this advice will apply to the agricultural commodities, especially corn, and how long it will take for the recovery of the prices back to their pre-cash levels, then it is important to know that the current price levels influence the production in future and the investment decisions.
The season average prices were compiled by the USDA dating back to 1866. It was in 1862 that the USDA was established and the Civil War that ended in the year 1865 left the earliest date for the existence of reliable data as 1866. The changes in the data collection techniques were executed in 1948 and so the 148 year time period is divided into two segments – 1866 to 1947 and 1948 to 2014. In each of these sub-periods, the season average price for every year is compared with the season average price for the next year. In case, the price of the next year is lower, it is defined as a year-to-year decline. Later, the season average price of every year is noted to know if it is equal or higher than the starting value.
There are data limitations in these are the season average prices. It would have been higher than the average prices and lower than the average prices each marketing year. The results presented here can overstate the number of years that are needed for a specific recovery price that was achieved. Using averages, we can be certain that a specific price actually took place in a year.
While the two sub-periods have notable differences, the results were similar and let us draw general conclusions about the price behavior of the corn market in the past 148 years. The prices have recovered from a downturn, and past results might not be a reliable predictor of the performance in the future. The question of when the price recovery will take place is quite tricky. In the past periods, the prices have recovered within five years, and so there is a chance for the price level to restore by 2018 if the price drop happened in 2013, for instance.
Also Read Investment Trends In Agricultural Commodities