Agri Commodity Trading: Here’s What Every Beginner Must Know!

When we think about commodity trading, the first things that come to mind are metals like gold and silver or energy products like crude oil. We have covered the basics of these in previous chapters of our commodity trading course. Now comes something exciting for you! Have you ever considered trading in agricultural commodities? Agri commodity trading is an essential part of the Indian economy.

We all know that agriculture is the main source of income for almost 80% per cent of India’s population.

Let us introduce you to the basics of agri commodity trading and the list of agri products in India!

What is Agri Commodity Trading?

Agri commodity trading is the process of buying and selling agricultural products in the commodity market. The agri products trading can include wheat, rice, cotton, sugar, soybean, maise, spices, etc.

Agricultural commodities are traded on the National Commodity and Derivatives Exchange (NCDEX) using futures contracts.

A futures contract, as we have already learnt in our commodity trading series, is an agreement between a buyer and seller to purchase or sell a commodity at a specific price on a future date. 

How does agri-product trading work?

• Farmers sign contracts to sell their products at a set price in the future.
• At the end of each trading day, a settlement price is determined for each commodity.
• If the settlement price is higher than the agreed price, the difference is added to the trading account.
• If the settlement price is lower, the difference is deducted from the trading account.

What commodities are traded?

In India, you can trade agricultural commodities in two exchanges i.e., MCX and NCDEX.

They offer castor seed, cotton seed, wheat, chana, bajra, moong, groundnut, refined castor oil, barley, and turmeric.

What are NCDEX and MCX?

NCDEX is one of India’s top commodity exchanges. It’s comparable to the Multi Commodity Exchange (MCX), but NCDEX focuses more on commodities, while MCX focuses more on energy and metals!

Why Should You Trade Agricultural Commodities?

Agricultural commodities are essential in everyday life. Imagine going to the market and realising that masoor dal has increased by ₹40 per kg, and you wonder—what if you could actually earn by investing in these products? This is how agri-product trading works.

Their prices are influenced by weather conditions, demand-supply factors, government policies, and global trade trends.

Trading in agricultural commodities allows investors to take advantage of seasonal price changes.

Benefits for farmers

• Price discovery: Agri-product trading helps farmers discover crop prices year-round.
• Hedge against risk: NCDEX helps farmers hedge against risks and anticipated losses.
• Improve agricultural practices: NCDEX helps improve India’s agricultural practices by standardising product quality.

Benefits for investors and traders

• Invest in agricultural commodities: NCDEX allows retail and small traders to invest in agricultural commodities using futures contract speculations. 
• Hedge against inflation: Investments in commodities are usually a hedge against inflation. 

How NCDEX helps

• NCDEX is India’s largest agricultural derivatives exchange.
• NCDEX offers a diverse product offering for both the agriculture and non-agri commodities derivatives segment.
• NCDEX practices mark-to-market settlement.

List of Agri Commodities Traded in India

Here’s a list of commonly traded agri commodities:

• Cereals and Pulses

Chana, Barley, Bajra, Wheat, Moong, Maize (Feed Industrial Grade), Paddy (Basmati) – Pusa 1121, Unprocessed Whole Raw Yellow Peas

• Oil and Oilseeds

Groundnut, Crude Sunflower Oil, Castor Seed, Refined Castor Oil, Cotton Seed Oilcake, Soybean, Refined Soy Oil, Mustard Seed, Crude Palm Oil, Natural Whitish Sesame Seeds, Hipro Soybean Meal

• Fibres

Kapas, 29 MM Cotton, Cotton Wash Oil

• Soft Commodities

Gur (Feed Grade), Robusta Cherry AB Coffee, Isabgol Seed

• Spices

Turmeric, Coriander, Jeera, Jeera Mini

• Guar Complex

Guar Seed (10 MT), Guar Gum Refined Splits

Understanding MCX and NCDEX Agri Commodities

MCX (Multi Commodity Exchange) and NCDEX (National Commodity and Derivatives Exchange) are the two major platforms for agri commodity trading in India.

– MCX: Major agricultural commodities traded here include cotton, kapas, and mentha oil.

– NCDEX: Specializes in a wide range of agri commodities such as soybean, refined soy oil, RM seed, castor seeds, turmeric, jeera, dhaniya, guar seed, guar gum, cotton, and cotton seed oil cake.

Risks Involved in Agri Commodity Trading

Like any investment, trading in agricultural commodities involves risks. 

Some common risks include:

– Weather Risk: Unpredictable climate conditions can impact crop yields and prices.

– Government Regulations: Policy changes, import-export restrictions, and subsidies can affect commodity prices.

– Market Volatility: Prices of agricultural commodities can be highly volatile due to supply chain disruptions and global demand shifts.

Things to Keep in Mind While Starting with Agri Commodity Trading in India

Commodity trading in India can be profitable if approached with the right knowledge and strategy.

Here’s a checklist to help you get started:

Understand the Basics of Agri Commodity Trading

Learn about agri-commodities like wheat, rice, pulses, soybean, spices, cotton, etc through stock market free course online!

Understand how commodity exchanges like NCDEX (National Commodity & Derivatives Exchange) and MCX (Multi Commodity Exchange) function.

Select the Right Agricultural Commodity

‘Choose commodities based on demand, seasonality, and price volatility (e.g., wheat and rice have stable demand, while spices can be more volatile).

You must start with commodities that have good liquidity and volume in exchanges for smooth trading.

Understand the factors affecting each commodity—for example, rainfall impacts crop production, affecting prices.

If you’re new to trading agricultural commodities, keep following our free online trading courses in India to learn more about the agri commodity market!