Agriculture’s performance can diverge from the rest of the economy because of a variety of factors. A recent example is the increased volatility in prices caused by weather affecting production. In the remainder of 2015, the weather could play an even larger role as El Niño strengthens and has the potential to erase the dampening effect that large global stockpiles have had on commodity prices since 2013. Amid this heightened volatility, it is helpful to examine several key influences that have led to important divergences between agricultural sector performance and prices versus the overall domestic economy and capital markets through time.
There are three primary forces that can materially influence farm commodity prices — weather, globalization and institutional money.
The weather is the most obvious influence and is likely to take on an even more important role over the next year. The developing El Niño weather system is set to influ