How to Understand Grain Market Prices

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Grain prices are heavily influenced by weather, which affects crop output.
Grain prices are heavily influenced by weather, which affects crop output. (Image: Jupiterimages/Photos.com/Getty Images)

The world of investments includes more than stock and bonds. It also includes commodities which represent the largest group of traded assets in the word. Commodities, unlike stocks, are real assets that have their own intrinsic value. Grain is a commodity used world-wide, and as the world grows so does the need for grain. As demand ebbs and flows, so does the price of grain on the open market.

Research weather trends. The primary driver of grain pricing is changes in demand and supply that is driven, in part, by weather trends. Better weather conditions in grain producing markets creates more supply, which lowers the price. If the weather is poor, i.e., drought or flooding, grain crops may be compromised and supply will fall, resulting in a pricing increase.

Understand the role of emerging markets. Demand is also influenced by an increase in demand due to population growth in emerging markets. Study and research trends in the economies. Emerging markets are defined as those countries or markets that are experiencing rapid growth. The higher the growth, the higher the grain prices.

Use pricing charts to monitor trends, known as technical analysis. Technical analysis looks for trends in historical price levels rather than fundamental research about the grain market. Review grain prices over the last two years and look for increases or decreases which are not explained by weather or changes in demand from emerging markets. Try to forecast the direction of grain prices based solely on historical price charts.

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