Trading Agricultural Commodities: The How And Why Heading Into 2025

Interested in trading agricultural commodity futures? Click here to check out Plus500! Trading with leverage comes with a high risk and may not be suitable for everyone

When one thinks of agriculture, the natural word associated with it is food. However, in the realm of investing, any discussion about agriculture pertains to a broader set of commodities, including the raw, unprocessed grains (e.g., wheat, corn, soybeans, etc.) that are essential in making the food (e.g., bread, rice, etc.) we eventually eat.

For many investors, commodities may not be an asset class they intuitively gravitate toward; however, given their essentialness within the global economy, having exposure to commodities has the potential to be incredibly beneficial. At the same time, it must also be kept in mind that success is not the only possible outcome when trading.

The Value Proposition Of Commodities Investment

Commodities’ value proposition as an asset class includes two key elements: acting as a hedge against inflation and a portfolio diversifier.

Inflation – which can erode the value of stocks and bonds – often means higher commodity prices. Intuitively, for businesses involved in commodities, as the cost of farming and producing grains increases, it is passed along the development value chain and ultimately reflected in the prices of the goods that are consumed. This positive correlation between inflation and commodities has been observed by many over time and demonstrated especially in recent years, as there have been reports of individuals spending more on groceries than in previous years. For investors with exposure to commodities (or associated businesses) within their portfolio, their strong pricing power helps mitigate the effects of rising inflation.

Investors looking for ways to diversify their portfolios outside of the more traditional asset classes, such as stocks and bonds, will sometimes turn to commodities. Research conducted by PIMCO posits that commodities’ low correlation with stocks and bonds makes them an additive component to a portfolio, as they can lower overall portfolio volatility.

Current Developments Impacting Agricultural Commodities

The United Nations Food and Agriculture Organization (UN FAO) Food Price Index, which measures the monthly change in international prices of a basket of food commodities, rose in October 2024 to its highest level in 18 months due to increased vegetable oil quotations. As reported by the agency, the FAO Vegetable Oil Price Index spiked by 7.3% month-over-month in October, hitting a two-year high due to rising quotations for palm, soy, sunflower and rapeseed oil, driven mainly by concerns about production.

Regarding other commodities, the agency indicated that the FAO Cereal Price Index increased by 0.9% in October, led by rising wheat and maize export prices. Global wheat prices were affected by unfavorable weather conditions in major northern hemisphere exporters as well as the re-introduction of an unofficial price floor in the Russian Federation and rising tensions in the Black Sea region. Also, the FAO Dairy Price Index rose by 1.9% in October, averaging 21.4% above its level at the same time last year. Higher international cheese and butter prices primarily drove the increase, while quotations for milk powders declined.

Why Consider Agricultural Commodities Now?

While supply and demand factors naturally influence commodity prices, climate-related developments and geopolitical activities also have a material impact. In recent years, global events such as COVID-19 and the Russia-Ukraine war have impacted agriculture as an investment segment. Regarding the latter, Russia's recent attack on Ukraine's grain infrastructure is an example of a geopolitical event that has a material influence on commodity markets. According to the UN, Ukraine normally supplies the world with around 45 million tons of grain every year. Given the ongoing conflict, this has been diminished, with pricing implications.

For individuals interested in agricultural commodities as investments, agricultural futures enable traders to buy or sell a specific amount of a commodity at a predetermined price. As market dynamics change, traders can capitalize on price shifts within commodity markets and potentially reap amplified profits.  

Investing In Agricultural Commodities With Plus500

Plus500 PLSQF is a multi-asset fintech group operating trading platforms globally. Established in 2008, the firm has grown its position as a player in the financial trading sector, being listed on the London Stock Exchange under the ticker symbol PLUS and included in the FTSE 250 Index.

Given the firm's global operations, the firm is regulated by several entities, including the UK’s Financial Conduct Authority (FCA), the Australian Securities and Investments Commission (ASIC), the Israel Securities Authority (ISA) and other entities across Europe and Asia-Pacific jurisdictions.

Regarding service offerings, Plus500 is expanding and currently offers three platforms: Plus500 Contract For Differences (CFD) with more than 2800 CFD instruments, Plus500 Invest with more than 2700 shares (available in certain countries) and Plus500 Futures, which is a futures platform available only in the U.S.

As a trading platform, Plus500 is designed with the aim of being straightforward and accessible for beginners can use the demo account and the Trading academy to gain experience before trading while offering advanced features for experienced traders. Traders can start with as little as $100, and Plus500 Futures (U.S.) offers a deposit bonus of up to $200.

For traders interested in agricultural commodities, Plus500's platform offers agricultural futures, allowing interested individuals to try and benefit from the changes occurring in commodity markets. Plus500 also provides educational resources that can be utilized to improve one's trading ability, and there is ongoing 24/7 professional support as needed.  

Ready to begin your agriculture trading journey? Click here to check out the Plus500 platform! Trading with leverage comes with a high risk and may not be suitable for everyone.  

Featured photo by Dong Zhang on Unsplash.

This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.