AFRICANEWSWIRE.NET (July, 26 2012) In a recent Penny Stock Detectives ish-long-term-trend-in-agricultural-commodities-intact">article, editor Danny Esposito points out that trading in particular agricultural commodities is difficult and downright dangerous, because fluctuations in price oftentimes are related to weather and other seasonal patterns that change from year to year. Esposito notes, however, that if an investor takes a step back, a strong case can be made for owning a basket of agricultural commodities for the long-term.
“For instance, U.S. farmers felt the demand for corn was strong and so planted more corn on their farmland this year,” explains Esposito. “While the demand for corn is definitely present, the amount of farmland is limited. If most of the farmers plant corn to take advantage of what they perceive to be higher prices, then another crop is being sacrificed.”
According to Esposito, soybeans have been the best-performing agricultural commodity in 2012, as less farmland is being dedicated to the crop. Now China is scrambling to meet its demand for soybeans, he notes, as supply has become limited, which has sent prices soaring.
“It would stand to reason,” Esposito argues, “that if so many U.S. farmers thought alike and planted more corn than soybeans, then corn prices should fall or at the very least remain stable. Unfortunately, unusually dry weather negatively affected the corn farmland. The resulting likely reduction to the amount of corn available caught everyone off-guard.”
Instead of corn prices falling, they shot up due to the adverse weather conditions, states Esposito.
In Esposito’s opinion, sugar is another agricultural commodity with a relatively stable price, as supply was going to be roughly in line with demand in 2012. However, sudden rains in Brazil damaged the farmland there, reducing the supply of sugar, which then sent sugar prices up, notes the Penny Stock Detectives editor.
According to Esposito, these are just a couple of scenarios that occur all too often in the agricultural commodities space. Predicting weather and how farmers will use their farmland is extremely difficult, notes Esposito.
“Asia’s growing economies and populations—particularly China’s—mean growing demand for agricultural commodities in general. In China in 2011, there were 250 million people who were part of the new middle class. There are an estimated 235 million more people moving up the economic ladder to join the middle class in the coming decade, further confirming China’s growth story,” reports Esposito.
He continues, saying “It is no secret that China as a country has one of the lowest average agricultural commodities resources per person in the world. Considering China’s growth over the last few decades, this means that China must look outside of the country to get the agricultural commodities it needs.”
With this backdrop intact and the other Asian nations experiencing growth similar to China’s—Indonesia, South Korea, India, and Thailand—the long-term fundamentals for agricultural commodities are intact, believes Esposito.
He argues that while buying one agricultural commodity can be dangerous and speculative, owning a basket for the long-term, considering Asia’s growth story, makes a lot of sense.
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