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Futures Contracts – Which One Suits You Best?

Post a Comment April 17, 2009 – 9:14 am |   | Permalink |  Print This Post |

If you’re thinking about investing in futures, you may be confused by all the options out there (no pun intended.) Should you buy a contract in Gold? How about Coffee? Or maybe oil would be more profitable?

With the rising grocery prices and the global economy being what it is, agricultural investments may be the way to go. Why? Because no matter how bad the economy is, and how many people lose their jobs, we still have to eat. We may not buy gold, we may not drive to as many places using less gas, but we still have to shop for food.

That is not to say that agricultural contracts are less risky; there could still be margin calls, and volatility, and of course weather plays a huge factor in the quality and quantity of the crops. A bad crop or two will impact supply and demand and with it provide ample opportunities for profit. It sounds a bit sordid to want a crop to fail in order to increase the laws of supply and demand; but that is how futures investors (and most other investors for that matter) make a profit. The rule of thumb: buy low, sell high.

There are many agricultural investments you can choose from: wheat, corn, soy, coffee, cattle, cotton, sugar, cocoa and orange juice are just a few.

For the potential investor, it is wise to consider these facts:

•    In recent years, red meat consumption has greatly increased among developing countries. This signifies the increase in farming lands being converted to grazing grounds due to the increasing demand in meat.
•    The U.N. predicts an increase in global population from 6.6 billion to 9 billion by 2050.
•    More and more people are moving from their farms and into the cities. There are not as many food producers as there once was. Developers are buying up farm land to build housing. Agricultural land is disappearing.
•    The U.N. estimates that because of global weather changes, over 12 million hectares of land become desert each year and thus becomes unsuitable for food production.
•    The world’s population is getting younger. Young people consume more food than their older counterparts. Not to mention the younger generation has significantly less interest in farming, and are more drawn to the industrialized sectors.

So, the population is increasing, people are consuming more and more food and farming land is diminishing. The global economy is still in a recession, but we all need to eat.

There definitely may be an opportunity here for anyone interested in investing in agricultural futures.

Do your homework, know the risks and educate yourself on the volatility and opportunity for these markets. You may be pleasantly surprised!