INVESTING IN SOFT COMMODITIES (AGRICULTURE)

[1] Cocoa: Cocoa is traded in dollars per metric ton and one contract is for 10 metric tons, so when cocoa is trading at $1,500/M ton, the contract has a total value of $15,000.3 If a trader is long at $15,000/M ton, and the markets move to $1,555/lb, that is a move of $550 ($1,555 - $1,500 = $55, and 55 x 10 M ton. = $550). The minimum price movement, or tick size, is a dollar, or $10 per contract. Although the market frequently will trade in sizes greater than a dollar, one dollar is the smallest amount it can move. [2] Coffee :Coffee is traded in cents per pound. One contract of coffee controls 37,500 pounds of coffee.4 When the price of coffee is trading at $1/pound, the cash value of that contract will be $37,500 ($1.00 x 37,500 = $37,500). The tick size is 5 cents per pound, which equates to $18.75 per tick.4 For example, if a trader were to go long at $1.1000 and the markets moved to $1.1550, the trader would have a profit of $2062.50 ($1.1550 - $1.1000 = $0.0550, and $0.0550 x 37,500 = $2,062.50). [3] Cotton: Cotton is traded in 50,000-pound contracts. It is also traded in cents per pound, so if the market is trading at 53 cents per pound, the contract will have a value of $26,500 ($0.53 x 50,000 pounds = $26,500).5 The minimum tick size is $0.0001 or $5 per contract.5 Therefore, any 2 cent move in cotton will equate to either a gain or a loss of $1,000. When the price of cotton exceeds 95 cents per pound, the minimum tick movement will expand to $0.0005 to accommodate larger daily ranges. [4] Frozen Concentrated Orange Juice (FCOJ): Orange juice is a relative newcomer to the commodity markets. One contract of FCOJ equals 15,000 pounds.6 If the current market price is 90 cents per pound, the contract has a value of $13,500 ($0.90 x 15,000 pounds = $13,500). The minimum tick is $0.005, or $7.50 per tick per contract.6 For example, let's say you buy a contract of FCOJ when the market is at 95 cents and then sell it for $1. In this transaction, you would make $750 on the 5 cent move in FCOJ. [5] Sugar: Sugar trades in contracts, sometimes known as "Sugar No. 11", representing 112,000 pounds of sugar, and is expressed in terms of cents per pound.7 If the futures price is $0.1045, the contract has a value of $11,704 ($0.1045/lb x 112,000 pounds = $11,704). If the market moves from $0.1000 to $0.1240, that is equivalent to a dollar move of $2,688. The minimum price movement for sugar is $0.0001 or $11.20 per contract.