Grains Prices – Agricultural Commodities
Oil futures and oil seed prices are the two main commodities that have been affected by the price hike in oil caused by the Arab Spring. Both of these commodities are necessities to daily life. The high prices have affected the way that people live, eat, and spend. Futures is the “fastest growing” sector of the global economy; and much of the world’s food, energy, and currency is tied to its production.
Oil seed prices, which include both oil seeds and non-oil seed, rose about 300% over the last year. The prices are tied to the price of crude oil. This has caused many farmers to grow corn, wheat, and other grains for local consumption. These “specialty crops” are expensive to produce and ship. As a result, many small farmers have had to let go of some of their land or businesses to stay in business.
Oil is used for heating and cooking, but it is also a source of revenue for farmers. Much of the food that we consume each day is grown with oil. Some people argue that we should raise the price of oil so that people have an alternative; however, the price will not go down just yet. Even if the price does go up, the competition among suppliers will keep the cost of food down.
Oil is a commodity that cannot be stored easily and it has to be shipped from place to place. This means that there is always a risk of a supply problem and a rising price. For the time being, the United States is focused on finding alternative sources of fuel; but for the time being, corn and wheat farmers are taking the brunt of the market.
Oil seed futures do have a silver lining, though. One silver lining is that these contracts are highly liquid and can be traded rapidly. In addition, they allow farmers to secure a price for their crops no matter what the weather is like. Many farmers would be devastated if their crops did not come up; however, by selling their soybean and corn futures contracts on the commodity exchange, they are able to make some money off of their crops.
In recent years, the prices of many commodities have fluctuated. The unpredictable nature of weather and markets has caused drastic price changes for certain crops; however, the prices for soybeans and corn are tied closely to the prices of oil. If the prices of these commodities fluctuate out of hand, the prices of oil could as well. However, there is a silver lining in this dark cloud.