lunes, 11 de septiembre de 2017

Market Prices for Commodities: How are they Set?

There are different standards for different products.

Commodities move around an independent market. These elements are detached from other commercial activities and are regulated by their own entities. This makes it harder to understand how they exactly work. And among the most frequent questions on this market is price setting, how is the value of each commodity set. Today you’ll see how monetary values for these commercial activities are established.

Commodities market prices

The commodities prices are set according to their international value. However, this value is established by agreements among international entities that depend on futures contracts. What are these contracts? Regardless of their name, these contracts are set agreements to acquire or sell a product within a defined price range. These will often be in a closer time gap for most perishable elements, such as liquid milk, and have a longer period for products with a longer shelf life, such as beans.

While commodities are all unprocessed products, they need to be differentiated to set prices accordingly, taking into consideration the time frame in which these products can be transported, distances, international and domestic prices and many other factors that play a vital role in commodities price setting. One of the most important qualities that any commodity trader must have in this work field is an ability to understand the prices' fluctuating nature.

Certain natural occurrences (think of storms or pests) can cause a spike or a decrease in the product's international value. An incorporation of a producing country into the market can also shift the prices of a certain commodity, as well as a commercialization limitation that any other foreign entity might force on a product.

Prices used as a guideline are the ones set depending on futures contract characteristics set on produce. It means that we must understand that the current price might be affected by current events in a close future, for example.

These characteristics make it interesting for a commercial study, as prices are set without a defined path in the long run, based on an equity principle (all parties are benefited in the agreement), products offer and demand and relative future value.

Do you want to know more about commodities? Then don’t forget to read all articles we have here, at Coagro Corp. We’re always looking for alternatives to teach you how to interact with the commercial entities and understand the convoluted world of commodities!