How does ADM price its grain?


Quick Answer

Grain is a commodity, which means that its prices are determined by gauging the difference between future shares and the current local market value. Commodity prices are uniform, but local market value may fluctuate by region.

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Full Answer

Commodity futures promise the delivery of a specified amount of grain at a certain time and place at a pre-agreed price. Since futures represent the promise of a crop to come, a going price for the present must also be established. The going price is based upon the future price. Unlike the futures price, which is fixed, the going price is subject to fluctuation based on supply and demand. When demand for current and future shares remains steady, the prices are similar. If demand rises before future shares can be delivered, however, the local going rate may increase significantly.

Companies such as the Archer Daniels Midland Company use these two separate but interdependent methods to determine the prices of their grain. ADM is one of the largest food producers in the world, with over 460 crop locations. This company purports to have thousands of customers in more than 75 countries around the world. In addition to providing grain, ADM provides fuel and agriculturally based supplements.

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