Stocks & Commodities V. 26:12 (32-34, 36): Weather And The AG Markets by Joseph S. D�Aleo and Todd Crawford

Weather And The AG Markets by Joseph S. D�Aleo and Todd Crawford

When trading agricultural commodities it is important to have a solid understanding of how weather affects these markets. Here�s a quick lesson.

The tremendous volatility in many of the agricultural commodity markets during 2008 was at least partially due to the impact of weather, in particular the record flooding in the Plains and the Midwest. As larger entities (investment banks, hedge funds) continue to move into the agricultural markets, their influence will likely change the dynamics of the marketplace.

A similar paradigm shift has occurred during the past decade in the energy markets, where deregulation has resulted in more liquidity and volatility due to the impact of weather. Since these big players already understand how weather can affect the energy markets, they will likely bring that knowledge with them as they expand into the corn, wheat, and soybean markets, among others. For this reason, it is important for the smaller trader to develop a solid understanding of how various weather phenomena influence these crops and their market prices.