Factors Affecting Prices of Agricultural Commodities

Crops and cattle are considered agricultural commodities since they are raised & reaped for food and occasionally for fuel.

According to the USDA, India was the sixth largest net exporter of agricultural goods in 2013 with exports of $39 billion, ranking it as the 7th largest agricultural exporter globally. Agriculture accounts for just over 14.7% of total export earnings. In addition, over 20% of Indian exports are made up of goods made from agricultural raw materials. In other words, agricultural-related goods account for 38% of all exports from the country.

Over the past few decades, as agricultural production has increased, it has kept up with population growth while also posing significant supply, storage, & distribution problems. To guarantee a “fair” and “remunerative” pricing for the Indian farmer is a difficulty given the extremely fragmented markets and unstable commodity prices. The government implemented a variety of reforms with this in mind. Since commodity markets do affect the lives of billions of investors in the nation’s diversified and expansive commodities ecosystem, it has become vital to improve the current institutions in prompt and derivative trade.

Growing a crop and selling it on a nearby market are just the beginning of trading agricultural commodities. Understanding the fundamentals of commodity trading and possessing the technology necessary to run your firm may change the game.

Price-influencing factors for agricultural commodities

1. Production costs

Purchasing agricultural products requires a significant investment of capital. Land clearing, land repair, farm input, harvest, crop preservation, etc. are all a part of the crop production process.

Due to the elements involved, animal production also requires a significant amount of funding. The pricing of such agricultural goods will be high when the production cost is high, while the pricing will be lower if the production cost is low.

2. Production Quality

Agricultural produce that is of a good quality commands a higher price in the market. Some goods are more expensive when they are brand-new. However, when they have been on display for a long period or are afflicted by pests, such as grains that spoil or decay like fruits and vegetables, they tend to draw low pricing.

In conclusion, the price of agricultural farm products increases with their quality.

3. Production Quantity

If supply of agricultural products increases but demand stays constant, prices will often go down. However, prices will increase if the supply of agricultural products falls but demand stays the same.

When production is high, it drives prices down, and when production is limited, it forces prices to rise. This happens as a result of a greater rate of supply than demand. When there is equilibrium, the moderate price is attained.

When the price reaches the point where the amount supplied and the amount demanded are equal, it is said to be in equilibrium.

4. Supply and demand dynamics

They are the ones who set agricultural commodity prices. Demand is the consumer’s ability and willingness to consume or purchase specific goods or services at a specific price. The amount of products and services that a manufacturer is willing to sell to the market at a specific price, location, and time is referred to as the supply.

The economic model and its guiding principles are determined by these two forces. The law of the supply and demand is used to set prices for the sale of items. When prices increase, producers can set high prices for their products, but few people will actually buy them, which causes demand to decline.

5. Production’s Market Price

The market rate is the reasonable cost at which products or services are sold on the open market. A sudden increase in cassava flour’s commodity market price may push a consumer to switch to corn flour as a substitute. As a result of this change, cassava flour will become less expensive due to decreased demand. The market’s supply and demand dynamics have an impact on price.

6. The Seasonal Produce of Agriculture

The pricing of agricultural items like fruits and vegetables may be significantly impacted by this. During the dry season, various things are unavailable on the market. If such a product is found in the market, it may be rare and would be priced premium because of their rarity.

For instance, during the dry season, there are typically few crops like okra, cabbage, and spinach in the markets. However, they are in plentiful supply on the market and their costs significantly drop during the wet season.

7. The number of Manufacturers

When there are fewer producers, the rate of need will naturally outpace the rate of supply, resulting in a rise in price. However, if there are several producers, the pricing will be shoved down because of market pricing competition.

8. Government Policy

The government is a significant factor in setting a commodity’s market price, particularly when the manufacturers are defrauding the consumers. To prevent unthinkable market exploitation, the price regulating council (PRC) is an organization that sets pricing for commodities.

9. Marketplace data

Numerous economic performance indicators are constantly watched because they have the potential to affect commodity prices. These include the availability and appeal of replacement goods, economic outcomes, unemployment rates, inflation, and other factors.

How does supply chain instability impact customers and other parties involved?

Depending on their overall needs, customers respond differently to price volatility. Demand for commodities often rises when the global economy is strong and expanding, and the opposite is true when the economy is weak.

Most of the time, the major players at the end of the value chain remove the resources from the earth and those who provide the product to consumers the most control over vulnerability to raw material prices volatility.

Conclusion

Forecasts assist farmers in risk management because production decisions are sometimes made when prices are known. Consumers gain from the access to high-quality, affordable food. Providing details on anticipated prices also contributes to ensuring fair market operation. Forecasts are also used to recognise upcoming difficulties and develop policy solutions.

Both consumers and producers may be impacted by changes in food prices. Forecasting agricultural commodity prices is of utmost importance to the government, farmers, and agribusiness companies. The control of food security in developing nations like India requires skilled and efficient food price forecasting. Recent advancements in deep-learning algorithms offer a workable approach to properly estimate prices given the data that is available.

The main goal of this is to show how useful spot commodities price forecasting is in providing farmers and dealers with the most accurate predictions of price fluctuations. Our findings offer the potential for creating pricing that can aid in fairly regulating the prices of agricultural commodities.