Agricultural commodities, all over the world, behave quite differently compared to other commodities like bullion or crude. Still, the principle behind the prices of all commodities is the simple demand–supply equation based on the global consumption and production.

Usually, a bad news or good news in the economy has a proportionate negative or positive effect in equities, forex, energy, and precious metals markets. But, in the Agricultural commodities market, the futures contract prices mostly react in an opposite way to agricultural news. Agriculture methods today have vastly advanced with most farmers employing state-of–the-art technologies in farming. Still, the seasonal weather changes like rain and summer hold a huge sway over the rise and fall in agricultural production of a country.

In the agricultural commodities market, a drought or a shortfall in the rain will cause the futures contract prices to spike immediately. This is because a drought will cause a severe decline in production levels that result in a supply shortage. Since this creates a rise in demand, the agricultural commodities markets react sharply to adjust its futures contract prices. Conversely, if there is a good weather and bountiful harvests the supply will be adequate or exceed the demand, resulting in a sharp decline in the commodity futures prices.

Currently, according to the major weather forecasts and agricultural experts, the global weather has been good for the crops since last winter. Apart from this, a normal to cool summer forecasts for U.S. weather has further dampened the futures prices in the agro-commodities markets.  Reflecting this sentiment the U.S. corn September futures had declined by 0.8 per cent to $ 574.63 on June 25, 8:30PM (IST).

Whereas, the U.S. CBOT corn for the December 13’ contract has fallen by 1.37% to trade at $504.00 on June 29, 12:26 AM (ET). This was predictably in reaction to the U.S. Department of Agriculture forecasts, released on Friday June 28, which estimates farmers to plant more corn this year than usual, on cues of good weather forecasts.

On the other hand, the CME group has reported that more commodity traders have opted for the Short-Dated New Crop Corn Options with a significant decline in the December contracts. On June 27, the CME group announced that its daily volume for the Short-Dated New Crop Corn Options has reached a record number of 35,355 contracts from its previous record of 24,388 contracts.

With good weather forecasts for corn all through this year, the commodity futures contract prices for Corn is bound to post further decline, unless the weather decides to intervene with a surprise.

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.