It is important for a farmer to understand seasonality in prices of the commodities that they sell. Seasonality is usually quite predictable. Growing seasons vary for different regions and different plants. There are many variables such as dry weather, freezing weather, disease outbreak and conditions that factor into the price of commodities sold. Farmers work to improve their quality of product by managing soil health, nutrients in soil, combating pest and weed pressure. Crop rotation on farms can be helpful for long term soil and farm management. Some of the reasons farmers actively do crop rotation is to break fungus, disease and insect life cycles. All of these factors contribute to the quality of products that the farmers produce that will be sold.
Farmers work to their best abilities to make sure that the products they are producing are not only at a certain quality but are less expensive during the season that they are grown in and more expensive during the season they are not grown in. Farmers have to take certain situations into perspective such as being able to preserve certain foods and be able to store them for time periods. Not all foods are able to be stored. Farmers have to evaluate a system of what foods will last in certain conditions to be able to increase their profits when it is hard to sell food that does not grow at certain times of the year.
Recently, rising commodity prices have occurred. “Prices for corn, soybeans and wheat have soared to their highest levels in more than six years as dry weather and strong export demand from China drain U.S. stockpiles. At the same time, the revival in the grain sector is boosting costs and pressuring profit margins for producers of food and fuel that soak up vast quantities of U.S. corn and soybeans each year, and likely will drive increases in food prices for consumers, some food executives say.” (Wallstreet Journal, 2021) Lately, despite rough conditions for farmers to produce food, they have done a good job of evaluating how to increase their profits. Most farmers have increased their profits based on seasonality.
I do believe cyclicality has a significant role in price determination of commodities. Cyclicality plays a huge role all of the time when farmers are selling their products. There are usually a few years of good returns with a few years of negative returns. Overall, seasonality and cyclicality are very similar and play huge roles in price determination of commodities.
References:
https://www.wsj.com/articles/surging-grain-prices-fuel-surprise-farm-recovery-11611322634
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