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The prices of derivatives commodities, especially in the agricultural sector like corn prices, wheat prices, or soybean meal prices, are among the top concerns for investors. Understanding the factors influencing price fluctuations not only helps you grasp market trends but also optimizes your investment strategies. In this article, SFVN provides a detailed analysis of these factors and their impact on the market.

Understanding influential factors is a key to success in derivatives commodity investment

What are agricultural derivatives commodities?

Agricultural derivatives commodities are financial contracts based on the value of agricultural products such as corn, wheat, rice, soybean meal, maize, and more. Instead of trading the actual products, investors trade based on predictions of future price movements.

Common types of agricultural derivatives commodities:

• Corn: A primary ingredient in the food industry and ethanol production.
• Wheat: The most widely used grain in food production.
• Rice: Includes white rice, brown rice, and other varieties, catering to both domestic and export markets.
• Soybean meal: A key component in animal feed, playing a crucial role in agriculture.
• Maize: A versatile crop used in various food processing industries.

>>> Read more: What is commodity derivatives investment? What products should you choose to invest in?

Derivatives commodities attract investment opportunities with high liquidity

Factors Affecting the Prices of Agricultural Derivatives Commodities

The prices of derivatives commodities are influenced by various factors, including natural conditions, economic policies, and global price trends. Below are the key factors:

Market Supply and Demand

Supply and demand are always the determining factors of any product’s value, including agricultural derivative commodities. When supply exceeds demand, commodity prices decrease. Conversely, when demand surpasses supply, prices rise. Several factors influence supply and demand:

• Agricultural production: Reduced output due to bad weather or natural disasters leads to price increases.
• Consumer demand: Rising demand for animal feed production or bioenergy can push prices higher.
• Transportation costs: Higher freight rates can increase retail commodity prices, including today’s retail rice prices or export corn prices.

Examples:
Corn production in the U.S.—one of the world’s largest corn exporters—can significantly impact global corn price charts. Similarly, wheat production in countries like Russia or Ukraine determines global wheat prices. 

Additionally, the demand for agricultural products as raw materials, such as ethanol from corn, animal feed from soybean meal, or rice consumption in developing countries, also affects prices.

The imbalance between supply and demand is the primary cause of volatility in derivative commodity prices

Impacts of Weather and Climate

Weather and climate are uncontrollable factors that directly affect supply.

• Drought: Drought in major production regions like the U.S. Corn Belt reduces corn and maize yields, leading to higher corn or today’s maize prices.
• Floods and natural disasters: In Asia, floods can severely impact rice supply, especially for export, causing fluctuations in brown rice prices, retail rice prices, and daily rice price charts.
• Long-term climate changes: Climate change not only affects crop seasons but also raises production costs, indirectly driving agricultural commodity prices higher.

Examples: 

• In 2023, prolonged drought in Argentina drastically reduced soybean meal production, causing a significant price increase globally. 
• A favorable harvest season in Europe could help balance the market and stabilize global wheat prices.

Harsh weather conditions are a major challenge for agricultural production

Government Policies and Regulations

Economic and trade policies of exporting and importing countries play a significant role in shaping prices.

• Export and import taxes: High export taxes on U.S. corn can drive global corn prices higher, affecting today’s maize prices in Vietnam’s domestic market.
• Price support for farmers: Subsidy programs in the U.S. or Europe can stabilize prices but also create competitive barriers.
• Export restrictions: Countries restricting rice exports during shortages can significantly raise global rice prices and export prices.

Example:

In 2024, India—one of the world’s largest rice exporters—imposed export restrictions, causing a global spike in rice prices, which also affected today’s rice prices in Vietnam

Government policies can significantly alter trade balances and commodity prices

Economic Conditions and Inflation

Global economic trends and inflation are closely tied to derivative commodity prices.

• Inflation: Rising inflation increases production, transportation, and storage costs, driving up prices for products like corn and rice.
• Exchange rates: Fluctuating exchange rates make imported goods either more expensive or cheaper, directly affecting today’s latest rice prices.
• Global economic fluctuations: Economic recessions or strong recoveries in major countries influence commodity consumption demand, altering today’s maize or wheat prices.

Example:

During the 2008 financial crisis, derivative commodity prices surged due to inflation and market uncertainty.

Derivative commodity prices are heavily influenced by global economic fluctuations

Speculation and Market Sentiment

Speculation is an inherent part of the derivatives market. Speculators often trade to profit from price volatility.

• Speculative activities: When speculators bet on higher corn or soybean meal prices, they buy large volumes, driving prices even higher.
• Market sentiment: News about natural disasters, wars, or economic crises can trigger herd behavior, creating substantial price fluctuations.

Example: 

In 2022, the Ukraine conflict caused a sharp rise in global wheat prices within weeks due to fears of supply shortages.

Market sentiment and speculative activities cause rapid fluctuations in derivative commodity prices

Useful advice for investors

To optimize profits and reduce risks in derivative commodity investments, investors should:

• Monitor supply-demand factors and market trends closely.
• Use risk-hedging tools like futures contracts or options.
• Partner with reputable organizations like SFVN for strategic and timely support.

Conclusion

Agricultural derivative commodity prices are influenced by various factors, from supply-demand dynamics and weather conditions to economic policies and global price trends. Understanding these factors is the first step to successful investing.

Open a derivatives commodity trading account with SFVN today and begin your journey to increased profitability!