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Agricultural Finance: From Crops to Land, Water and Infrastructure by Helyette Geman

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Chapter 2Agricultural Commodity Spot Markets

‘Investing in agriculture today will be like investing in the oil sector in 2001–2002.’

Marc Faber, Gloom, and Doom Report – May 2011

2.1 Introduction

We first provide a brief description of the current world agricultural situation – what is grown in which location.

Table 2.1 describes the major agricultural crops grown in terms of acreage (acreage harvested, in hectares), all figures from the Food and Agricultural Organization (2010). Wheat, corn, rice, and soybeans are the most important crops worldwide for human beings.

Table 2.1 Acreage of the world's major crops in 2010

Crop World acreage
Wheat 217 million hectares
Corn 162
Rice 153.6
Soybeans 102.4
Barley 48
Sorghum 40.5
Millet 35.1
Cotton 32.1
Rapeseed 31.7
Groundnuts 24.1
Sugarcane 23.8
Sunflower 23.1
Oil palm 15.0
Coffee 10.2
Cocoa 8.9

For these major four crops, the USA is a prominent producer, and even more dominant as an exporter. China and India are also major producers, but with large populations most of their production is for domestic consumption. Brazil and Argentina join the USA as the dominant exporters of both corn and soybeans. Most rice is produced in and exported from Asia, as discussed in Chapter 7.

2.2 Price Formation in Agricultural Commodity Markets

As for other commodities, the major elements driving spot prices are

  • supply
  • demand
  • inventory

with the additional consideration of perishability for the inventory.

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