Department of Accounting, Finance and Economics - Assignment Example

The following paper will inquest and scrutinize the factors which are responsible for the volatile behavior of commodity process in the agricultural sector. Agricultural commodities are the hub of the world economy as every thing is dependent on the agricultural products especially in third world (Goodman, 1997). Different data sources and analysis techniques will be deployed in order to depict the exact factors responsible for the fluctuations in the agricultural commodities. Discussion The first and foremost factor in the fluctuations in the commodity prices of the agricultural sector is the increasing gap between the demand and the supply.

The demand has been increasing every day in third world countries, many parts of Asia and China whereas there has been no emphasis on the production part which is basically focused on the first world countries (Johnston & Mellor, 1961). Similarly, numerous macroeconomic and financial factors are censurable for the metamorphosis of the prices of commodities in the agricultural sector. In the similar fashion, high novelty and revision in the dollar prices due to the global shifts in the political and financial crisis is also responsible for these rate changes and imbalance in the prices. . There are many other factors on which the experts have a split.

For example, Gilbert and Morgan (2010) and De Schutter (2010) said that the fluctuations in the local agricultural commodities and food items are caused by irresponsible speculations and bad rumors culture which can bring the market up and down within no time. The stock market example has been used by them as an analogy but there is a difference o opinion in this theory and many experts like Irwin and Sanders (2010), do not consider this theory conforming the practical approach. According to a study, the extent of fluctuations in the prices o agricultural commodities have been recorded as the highest in past nineteen years and this is a very alarming measure indeed because of these high ate o fluctuations, the global economies are taking new turns.

Other minute factors include climate changes, unintended wars, disasters and cultural collapses throughout the world. Another very important factor behind the dramatic rise of agricultural commodities is the integration initiatives of the energy and agricultural markets in many production based countries. For example, in America, the prices for the paramount and importunate agricultural commodities like soybean, corn and wheat rose up with a rate of around 148, 123, and 154 percent respectively.

According to experts in America, around 70 to 75 percent of increase in the agricultural commodities is due the engendering and production of bio fuel and diesel based materials. The periodic abatements in the hedging efficiency is also a very conspicuous and considerable factor in the changes of prices agricultural commodities. For example, the hedging