The prices of commodities are based on supply and demand. If a commodity is plentiful the price is going to be low, however if the commodity is hard to come by the price is going to be high. The supply and demand cycles for most commodities move in fairly predictable seasonal cycles. Take apples for instance, in the fall apples are going to be cheap because that is the time of year that they are plentiful, and during the summer when they are out of season and not so plentiful they are going to be more expensive.

Manufactures that make products out of apples will plan their production season to purchase the highest quality apples at the cheapest prices. It should be noted that this strategy doesn't always work. Let say for instance that in a place where apples are grown a freeze occurs that wipes out most of the apple crops one year, this will cause the price of apple to rise because manufacture that use this commodity to make their products are going to be buying up all of the available apples that they can get their hands on to avoid a short-term crunch.

Because people can't predict when acts of God are going to occur, they can't plan for them. This is why futures contracts were invented, they help businesses minimize their risk. Buyer that have futures contracts allow buyer of commodities to purchase the commodity at a set price. this protects the buyer from paying a higher price for the commodity in instances where acts of God occur.

Farmers and other commodities producers can only estimate what the demand is going to be for their product and try to plan accordingly. This makes them very vulnerable because they because they can get stung by too much supply and too little demand, or the reverse. This goes for manufacturers as well because they have to take orders for future deliveries without knowing how much the raw materials are going to cost to manufacture their products. That is why they buy futures contracts for the products that they make or use, because they smooth out the unexpected price bumps.

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