India is predominantly an agrarian economy, ranking second in farm production in the world. While keeping pace with the increasing population, the growing agricultural production over the past several decades has thrown up major challenges in marketing, as well as supply, storage, and distribution.
Agri commodity trading takes place via future contracts. These contracts can be used for hedging against risk or an opportunity to profit from speculation. A commodity is an essential product. Agro commodities fall into the category of soft commodities; hard commodities are usually mined products.
The agri commodity markets do not exist for every agricultural product. Agri commodity trade takes place only in major commodities on six commodity exchanges in India. These products are generally cash crops. Some frequently traded products are spices, cereals, pulses, oilseeds, rubber, fibers like cotton and jute, dry fruits, etc.
Commodity trading in agro products helps to develop efficient hedging and speculation strategies. For instance, if there is a marked change in future prices, because of existing spot prices, an efficient hedging strategy can be made.
On the other hand, if changes in future price impact existing spot prices, an efficient speculation strategy can be formulated. Thus, on the basis of current trends in the market, it allows for finding future prices.
For both retail and corporate investors, trading in agricultural commodities provides them an opportunity to diversify their portfolios. Trading in commodities has become as easy as trading in conventional stocks and securities. All you need is to open a Demat Account and a Trading Account, and complete the requisite formalities. For making most of your investments in agro commodities, industry experts suggest taking into account supply and demand-based factors along with seasonal and weather-related variables.
“Agriculture is our wisest pursuit, because it will in the end contribute most to real wealth, good morals, and happiness”
– Thomas Jefferson