Agriculture investors should pay close attention to the commodity data and statistics related to the production, supply and distribution of the global agricultural markets. Several major institutions and agencies in the United States and across the world collect, summarize, analyze and publish important information that investors can use.

Agricultural prices are sensitive and may shift for reasons that include fluctuations in land prices, interest rates, inflation, variations in harvest performance, and speculative or hedge-based financial investment demand.

Land Prices and Agriculture

There is a two-way relationship between the value of land and the value of agricultural products. As such, it can be difficult to distinguish correlation from causation between the two. Nevertheless, because agriculture has a land-intensive production process, land values have an obvious impact on its input costs. Assuming productivity remains unchanged, rising land prices tend to indicate rising agriculture prices.

Interest Rate Policy and Agriculture

Interest rates, a predominant indicator in any sector, can noticeably impact agricultural markets. Agricultural producers store production surpluses as held inventory, and the interest expenses on inventory can significantly impact farm profits and affiliated businesses.

Interest rate movements alter the capital structure and costs related to land, buildings, machinery and equipment. Each farm crop is an investment, and higher rates can lower expected earnings across the entire sector if borrowing and capital costs increase.

Inflation and Agriculture

Inflation does not affect all products equally. The most impacted markets tend to be those in which the most money is circulated, such as oil and food. While the effects and causes of inflation are debated among economists, it is likely that inflation affects agricultural prices more than other commodities.

Harvest Performance

While changes in technique and technology have significantly improved farming and harvesting practices, agricultural performance is still largely influenced by weather-related phenomena. Agriculture investors should pay attention to changes in weather patterns, such as droughts, temperature fluctuations and storms. If there are several bumper crops, inventories increase and future prices face downward pressure. If crops struggle, the opposite is true.

Agriculture Speculation

Increased attention has been paid to the role of speculation on agriculture commodity markets since the Great Recession of 2007-2009, particularly in derivatives markets. There is concern that investors may cause extreme fluctuations in commodity prices if a large-scale sell-off is triggered.

Sources for Agricultural Data and Economic Indicators

The United States is, by far, the world's leading exporter of agriculture. Since the agriculture sector plays such a prominent role in the U.S. economy, the Department of Agriculture has established different institutions for effective development. The Economic Research Service, with a mandate to "provide key indicators" and "outlook analysis," and the Foreign Agricultural Service with a mandate for "maintaining a global agricultural market intelligence" for producers and traders.

The National Agricultural Statistics Service conducts a Census of Agriculture every five years and reports on the number of farms, value and use of land, production expenses, and market values.

The Food and Agriculture Organization of the United Nations publishes the FAO Food Price Index, which includes a basket of food commodities and possible explanations for fluctuations.

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