Most of us know different asset classes that people invest in; real state, bonds, equities and so on. But, maybe haven’t heard anything about crops and food commodities as an asset class. So, let’s to review this category from different sides.
The most famous asset classes
At the first step we have to review different classes of assets that people invest in:
Equities (stocks), fixed Income (bonds), cash and cash equivalents, real estate, commodities, futures, and other financial derivatives are examples of asset classes. There is usually very little correlation, and in some cases a negative correlation, between different asset classes. (Investopedia)
A farm current assets
Why we need to recognize current assets among different asset classes? Indeed, current assets are cash or items that can be easily converted to cash in one year or less. In a farm balance sheet, common current assets include cash, savings, prepaid expenses, growing crops, harvested crop inventories, market livestock, accounts receivable, seed, feed. (Ohio State University)
What are classified as commodities?
In economics, a commodity is defined as a tangible good that can be bought and sold or exchanged for products of similar value. Natural resources such as oil as well as basic foods like corn are two common types of commodities. … And like other assets, commodities can fluctuate in price according to supply and demand. (thoughtco.com)
Are commodities liquid asset?
The variety of commodity matters too. Broadly speaking, agricultural and energy commodities are more liquid than metals. Among precious metals, gold futures are more liquid than platinum futures; among base metals, copper futures are more liquid than aluminum futures. (Business insider)
Key benefits of commodities
As commodities are a distinct asset class with returns that are largely independent of stock and bond returns. Therefore, adding broad commodity exposure can help diversify a portfolio of stocks and bonds, potentially lowering the risk of an overall portfolio and boosting returns. Many of investors typically look to a commodities allocation to provide three key benefits to their portfolios: inflation protection, diversification and return potential.
