The Handbook of Commodity Investing

CHAPTER 38

The Fundamentals of Agricultural and Livestock Commodities

Ronald C. Spurga

Vice President

ABN AMRO Bank

Unlike the increased prices for commodities on energy and metals the market for agricultural products was not as profitable over the last years. After the consideration of inflation some agricultural commodities even showed a negative performance. Due to higher productivity in industrial and developing countries the supply was increasing and prices were under pressure. With increasing risks like global warming, illnesses/pandemics of plants or animals, higher prices of transportation, and problems of free trade and subsidies between developing countries and the two large free-trade regions, European Union (EU) and NAFTA, volatility of commodity prices could rise again. This chapter will provide an overview over the most important types of agricultural commodities and livestocks, namely grain, cattle, and hogs, as well as their fundamental influences.

GRAIN

The production, distribution, and processing of grain and oilseeds by U.S. firms represent a multibillion-dollar industry. This section focuses on the most important of these crops: wheat, corn, and soybeans. We will also briefly touch on lesser crops, such as barley, sorghum grain, oats, flaxseed, and rye. It should be noted, however, that many of the major grain companies also trade in these lesser crops.

Wheat

Wheat is divided into five classes: hard winter wheat, soft red winter wheat, hard spring wheat, durum, ...