What Does the Farmer Receive on the Commodity Market?

Commodities are the raw resources needed to produce finished goods. Commodities include raw grains, precious metals, pork bellies, crude oil and sugar, among many others. Farmers are commodities producers. Their products are sold on the commodities market to manufacturers.

Hedge Against Harvest Loss

A successful agricultural crop depends on good weather, lack of disease and pestilence. Farmers can protect against a small harvest by purchasing the right on the commodities market to receive cost at harvest time no matter the size of the crop.

Protection Against Falling Prices

Should prices suddenly fall for a specific commodity, farmers can lose the return on their investment. The commodities market allows farmers to purchase the right to sell their crop at a specific price, known as a commodities futures option. The farmer then secures the option to sell his harvest at the futures option price, no matter what the current market price.

Brings Buyers And Sellers Together

Farmers and customers are brought together on the commodities market. Both farmer and seller can win by entering into agreements on prices and costs. Farmers gain the assurance at planting that a buyer will be available to purchase their crop at harvest.

References

• Futures Trading Mentor: Commodities Market 101
• The University of Georgia College of Agricultural and Evinromental Sciences: Commodity Options
• Investopedia: Futures Market
• Encyclopedia.com: Commodities Market