- Corn futures are standardized, exchange-traded contracts in which the contract buyer promises to buy a particular quantity of corn (e.g. 50 tonnes) from the seller at a predetermined price on a future delivery date.
- The Chicago Board of Trade (CBOT), NYSE Euronext (Euronext), and Tokyo Grain Exchange all trade corn futures (TGE).
- Margin is used to trade commodities, and it varies depending on market volatility and the current face value of the contract. To trade a maize contract on the CBOT, for example, a trader may be required to maintain a margin of $1,350, or about 4.5 percent of the commodity’s face value.
- Several key reports on corn are published by the United States Department of Agriculture (USDA). Every year in the second half of March, the USDA releases its Prospective Plantings report, which details how much and what crops farmers will plant for the coming season. The Monthly Crop Production report predicts supply and demand for soybeans every month after then.
How do you interpret the price of corn futures?
The most recent or most recent trade price. In this situation, 614.6 = $6.146 per bushel futures price in US Dollars
Total open option contracts that have been traded but not liquidated with offsetting trades are referred to as open interest.
The component of the cash price that is influenced by local supply and demand is known as the basis. Each grain terminal has its own set of basis levels, which might be negative or positive. When reading the basis section of grain prices, it’s crucial to know if the price is in Canadian dollars, the delivery time, and the unit of measurement (bushels or metric tonnes).
In comparison to the futures market, a high basis suggested a high local cash price. It’s a sign of high demand or low supply in the area.
Weakening base indicates that local supply is relatively large in comparison to overall supply.
Premiums and reductions will be tailored to both the buyer and the grain you deliver. Premiums and discounts are frequent in the grain industry, depending on market conditions, grain grade, and what a grain company is seeking for. When negotiating a contract, inquire about the premium and discount levels. Having grain samples assessed in several locations is a useful approach to figure out what quality the grain is and can aid in making quality-based marketing decisions.
Other things to have top of mind when reading grain prices
It’s crucial to understand the currency in which the price is quoted and how the grain firm manages foreign exchange. Grain companies can adjust for foreign exchange in the futures market or on a basis basis.
What is the procedure for purchasing corn futures?
The answer to this query is simple: open an account with a broker and you’re ready to trade. However, in the following paragraphs, we’ll concentrate on the essentials that you should be aware of, as well as some helpful hints and ideas to assist you fully comprehend how to trade corn futures successfully. We’ll go through everything from the characteristics of the commodity and the factors that influence its price to technical aspects like margin trading limitations, leverage, and the finest industry reports to follow.
Get Familiar With the Underlying Commodity
We normally research the components of indexes before trading them. It’s the same with corn futures trading. It is critical for the trader to gain a thorough understanding of the underlying commodity. This will enable them to be aware of all elements that may influence the pricing. The main producers, when it’s grown and harvested, how quality is determined, how it’s performed in the past, and how the corn futures market operates are all elements to consider.
Corn is well-known for being one of the world’s oldest and most significant crops. The Aztecs and Mayans were the first to cultivate it, paving the way for its supremacy in the Americas. It is now the second most farmed plant in human history, trailing only wheat. Since the mid-1880s, corn futures contracts have been traded.
Corn is an important food source for both humans and livestock. Corn is used to make ethanol, tires, whiskey, beer, paints, fodder, shampoo, toothpaste, pharmaceutical items (antibiotics and aspirin), and more, in addition to being a food source. It’s also utilized in adhesives and paper products because of its high viscosity.
The Importance of the Production Cycle
Before trading maize, it’s also a good idea to familiarize yourself with the crop’s production cycle. Corn is a warm-season crop that requires temperatures of at least 60F for two to three weeks following the last frost in the spring. It’s important to keep in mind that corn crops might take anywhere from 60 to 100 days to mature.
It should come as no surprise to hear the name Chicago Board of Trade referenced frequently when discussing corn trade. The reason for this is that the CBOT is the world’s most popular corn futures trading exchange. Apart from that, corn futures are traded on the NYSE Euronext and the Tokyo Grain Exchange.
Know Who You Are Up Against
This is critical because trading is a realm in which market attitudes collide. You must understand the other participants and their behavior in order to do well in the financial markets.
Corn futures are, first and foremost, a popular investment option among consumers and farmers. To lock in a price, they buy and sell futures. This ensures that purchases/sales will be delivered in the future. Short hedges, for example, are commonly used by corn growers to lock in their preferred selling price in advance. Consumers, on the other hand, rely on extended hedges to find the best price for the genuine commodity’s future delivery.
What you should know about these market participants is that they are dependable and return year after year. Because their output is dependent on corn deliveries and sales, they are serious about their ambitions. They usually trade in enormous volumes, which can have a favorable impact on the asset’s price. Corn producers and consumers’ actions are usually a good indicator of the market’s health.
Corn futures are also popular among speculators, who seek to profit from price fluctuations and market instability. A more aggressive trading style is one of their hallmarks. They frequently acquire and sell without intending to keep the asset.
Consider Indirect Factors
Corn futures prices are determined by a variety of factors. While certain factors may be seen on the surface (weather, supply and demand, and so on), others remain hidden yet can have a significant impact on the price.
Take, for example, meat consumption. The majority of the crop produced is used to feed cattle. The world’s meat consumption surged by 500 percent in the second half of the twentieth century, according to data. Some predict that it will increase by 160 percent by 2050. This means that when corn becomes more popular, its price may rise as a result if demand isn’t met in a timely manner.
Macroeconomic Indicators
Take a look at the macroeconomic factors as well. As previously stated, the United States is the world’s biggest maize producer. This suggests that the value of the US dollar (or the economy) has a negative impact on corn prices. When the dollar rises in value, net exports fall as foreign buyers find it more expensive to buy it. This is likewise true in the opposite direction. As a result, it’s critical to keep a watch on the US economy as a possible trigger for price swings in corn. Make sure to keep a watch on the economics of emerging markets as well. If they slow down, their purchasing power will dwindle, and export demand would suffer as a result.
However, the truth is that the US dollar can impact maize prices in another way. Consider a scenario in which the Federal Reserve keeps interest rates low, allowing for speculation in a variety of asset classes. Increased speculation may have an impact on the maize market, causing prices to soar. If the dollar remains weak, for example, inflation may result, and maize prices may rise.
This demonstrates that the asset class is quite complicated. To be a great trader, you must be knowledgeable about all of the factors that can affect the price of the product. Otherwise, you risk trading on false indications and losing a lot of money.
Keep an Eye On All Related Industries and Assets
Although the majority of maize is consumed as food, a substantial portion is used as a raw material in other sectors.
Take, for example, biofuel production. Corn is used to make an environmentally friendly biofuel that has gained popularity in recent years. However, if rival sectors such as solar energy, wind power, or hydropower technologies progress and prove to be a superior and more cheap option, corn’s demand as a biofuel raw material will plummet.
Keep an eye on how corn is used to make all of its other products, as well as the changes in the sector. Consider the manufacture of beer and whiskey, for example. If interest in corn-based alcoholic beverages declines in the United States, the business will be forced to rely on exports to stay afloat. Consider pharmaceuticals: new antibiotics and medications are developed on a daily basis. As the pharmaceutical business evolves, it may strive to modify its production by eliminating some of the raw materials it now uses, particularly corn.
Competing Assets
Also, keep an eye on the price of assets that may have an indirect impact on the price of corn futures, such as crude oil. The price of a commodity is determined by the demand for gasoline (geopolitical factors, supply and demand, and more). The demand for ethanol, on the other hand, is determined by this. Corn is, as previously said, at the heart of ethanol manufacturing. As a result, having high crude oil prices and low maize prices at the same time may boost ethanol demand. As a result, it would have a favorable impact on corn prices.
The government is actively subsidizing maize growers in order to boost ethanol output. Any significant changes in policy would almost certainly have an impact on corn prices. As a result, dealers must be aware of the most recent government policy. Corn is becoming more and more significant for ethanol production.
Corn’s price is significantly associated with the prices of other grain products, such as wheat, barley, and soybeans, as one might expect. As a result, supply and demand mismatches in these markets are frequently carried over to the corn market. Keep an eye on these associated markets for signals that the maize market may be affected.
Strive to stay on top of recent developments in the relevant industries, as they may have an impact on the corn futures market’s short- and long-term price swings.
Consider the Seasonality Factor
Understanding the seasonality of pricing patterns is a part of being familiar with the underlying commodity. Corn normally reaches its top price levels for the year in late June to early July. Corn pollination takes place from mid-to-late July, when moisture and temperature levels are crucial.
When this phase follows a period of difficulty (a drought, a production problem, etc. ), the market tends to panic, causing prices to spike. When this happens, the prices automatically begin to decline again. Traders usually know that such severe conditions are uncommon and only endure a short time after they grasp how rare they are.
Corn prices, on the other hand, are at their lowest during the yearly harvest season, which begins in September and ends in November. The reason for this is that all farmers begin selling their crops around that time. This indicates that the market is seeing a sudden surge in supply that surpasses demand at the time.
Corn prices normally stabilize and volatility levels diminish over the winter months. This is the time to turn your focus away from domestic demand and toward exports, as they are a major driver of corn prices at that time.
Be Aware of Corn Futures Margin Limits
By now, you should have a firm grasp on how to compute the value of price moves and total contract amounts in the corn futures market swiftly and easily. Now we can talk about how important it is to keep mindful of your margin restrictions.
The following explanation should be helpful to people who are unfamiliar with margin trading in the futures market.
Margin is the very minimum amount of accessible funds needed to maintain a leveraged futures position in your trading account. Based on its volatility characteristics, each market has a varied margin amount. These figures are set by the exchanges.
Margin Types
There are two types of margin to be mindful of: initial margin and maintenance margin.
- Initial Margin – the minimum money required to open a new position. When using a margin account, it is the proportion of the purchase price of a security that must be covered by cash or collateral.
- Maintenance Margin – The amount of money a trader needs to keep an open position open. Your broker will either liquidate your transaction or force you to post additional funds to cover the gap if you go below the maintenance margin requirements.
A normal corn futures contract’s minimum initial margin is $2,025. A normal corn futures contract’s minimum maintenance margin is $1,500. Depending on market volatility, the exchange changes these margins up or down.
Use Leverage Responsibly
Many traders mix up the terms “margin” and “leverage.” They are not the same, despite their near resemblance. Let’s take a look at leverage and how to use it properly now that we’ve addressed the importance of maintaining inside your margin requirements.
Simply simply, leverage permits you to take ownership of a larger position in an asset with less capital.
An Example of Using Leverage
Assume you have $5,000 in your trading account and decide to go long on a $4.00 corn futures contract. Assume the price of maize grows from $4.00 per bushel to $4.40 per bushel. As a result, the actual increase in grain prices is 10%. On a non-leveraged trade, this is your percentage profit. On a regular corn contract, that would be a $2,000 profit ($0.40 x 5,000 bushels = $2,000).
But what does this entail in terms of leverage for your $5,000 account? With the $2,000 profit from this trade, your trading account would now be worth $7,000, a 40% increase.
The Risks of Using Leverage
However, keep in mind that leverage is a two-edged sword. If the price dropped by the same $0.40 from your $4.00 entry point to $3.60, you would have lost 40% of your investment.
As a result, it’s critical to use leverage wisely. But how much leverage is the right amount to use? That is, of course, a personal decision based on your risk tolerance. As a general guideline, strive to keep your leverage limit between 3:1 and 4:1. By maintaining inside these parameters, you can still gain significant percentage points. You can protect your trading funds from a huge single trade disaster by reducing the amount of leverage you utilize.
Monitor Weather Conditions
Corn prices are highly influenced by weather conditions. As a result, supply and demand mismatches in this market can move swiftly. In the largest corn-producing states, you must remain ahead of potential weather fluctuations. Illinois, Indiana, Iowa, Nebraska, and Ohio are among them. Keep in mind that farmers and maize futures traders are most concerned about high temperatures and droughts in the Midwest. As a result, make sure you’re up to date.
Despite the fact that worst-case weather projections rarely come true, there are times when crop loss caused by extreme drought leads to enormous price hikes. Corn’s all-time high occurred in 2012, just after a period of drought. As a result, throughout the summer, dealers often consider selling grain.
Here are a few tips on how to navigate such scenarios:
- When weather-related events can generate heightened volatility and risk exposure, try to stay out of the market.
- The price of corn drops in November every year. This corresponds to harvest season, when supply is often at its peak.
Although we can never be certain when it comes to terrible catastrophes, it is always preferable to be prepared. When weather-related events enhance volatility and risk exposure, it is sense to stay out of the market.
Key Reports for Corn Futures
Whether you’re a technical or fundamental trader, there are three reports you should pay attention to since they can have a big impact on the corn futures market.
USDA Report
The USDA publishes an export report every Thursday. The paper includes a detailed examination of grain export demand. A solid export outlook is often positive for the corn market and corn futures price, which goes without saying. Furthermore, comparing US grain exports to those of other exporting countries is a smart idea. You will be able to detect any substantial disparities by doing so.
Planting Intentions Report
This report is produced and released by the USDA at the end of March. It specifies the quantity of land that farmers set aside for the growing of particular crops. You can forecast the total estimated size of crop production for the season using this report.
Grain Stocks Report
Every quarter, the National Agricultural Statistics Service (NASS) publishes this report. It provides a state-by-state report on maize and other grain inventories.
What is the process of trading grain futures?
A grain futures contract is a legally binding agreement for the delivery of grain at a specified price in the future. A futures exchange standardizes the contracts in terms of quantity, quality, delivery time, and location. The only variation is the price.
How are futures prices calculated?
To figure out how much a futures contract is worth, multiply the price by the number of units in the contract. To convert to dollars and cents, multiply by 100. Assume the price of coffee futures in May 2014 is 190.5 cents. 37,500 pounds equals one coffee futures contract, therefore multiply 37,500 by 190.5 and divide by 100. The coffee futures contract has a value of $71,437.50.
How far in advance do futures contracts trade?
From 6 p.m. EST Sunday until 5 p.m. Friday, the futures market is open nearly 24 hours a day. There is a 5 p.m. to 6 p.m. break, and some markets have additional breaks, but traders can normally find a market to trade at any time during the week.
What is the weight of a corn contract?
Every futures contract, like any other product that is purchased and sold, requires both a seller and a buyer willing to trade a contract at an agreed-upon price.
For example, if Farmer Sam sells a December corn futures contract for $4.50 per bushel, the contract buyer will also buy a December corn futures contract for $4.50 per bushel. As the seller, Sam has committed to a $4.50 selling price for 5,000 bushels of corn that he will deliver in December, while the buyer has committed to a $4.50 purchase price for 5,000 bushels of corn that she will get in December.
The physical corn has not moved at this time. The seller and buyer have just agreed to transact in the future.
*Think of it like a wireless carrier’s cell phone contract. Assume your parents have chosen a cell phone plan that will cost them $250 per month for the next two years. Even if the wireless company’s same cell phone plan gets more expensive throughout the two-year term, your parents will not pay more than the agreed-upon $250/month price because both the seller (wireless carrier) and the buyer (your parents) have agreed to it.
The terms of futures contracts are standardized, which means they do not alter. This makes trading a breeze. For example, one standard corn contract will always equal 5,000 bushels, and one feeder cattle contract will always equal 50,000 pounds. Agricultural commodity futures contracts are standardized in the following ways:
The price at which the contract is bought or sold is the only part of the futures contract that is not standardized. A futures exchange determines the current market price, which fluctuates as contracts are traded and supply and demand expectations move.
Is it possible to trade corn futures online?
Corn is ingrained in all of our lives, whether we realize it or not. The demand for ethanol has risen considerably as a result of recent oil price speculation. Demand for rice as a staple of the global diet and source of energy can only rise. There are two different contract denominations that can be traded:
Contract Expiration: To receive access to our web-based trading platform, request a free demo.
You will be able to read entire contract parameters, including First Notice and Last Trading Day, from within the web-based platform.
Margin requirements for open futures holdings are subject to vary and are required.
The CME Globex trading platform offers access to the corn futures market.
Open outcry trading takes place from 7:30 a.m. to 11:15 a.m. PT.
Electronic trading is available during open outcry trading and from 4:00 p.m. to 4:00 a.m. p.m. p.m. p.m. p.m. p.m. p.
Trading example: If you buy one contract of ZC at 600 and it goes to 610 the next day, you will make a profit of $500.
On the other hand, if it dropped to 590, you would lose $500. You can trade the small contract, which is 1/5 the size, for less risk and volatility.
What are the ways futures traders make money?
The value of futures and options is determined by the underlying, which might be a stock, index, bond, or commodity. For the time being, let’s concentrate on stock and index futures and options. The value of a stock future/option is derived from a stock such as RIL or Tata Steel. The value of an index future/option is derived from an underlying index such as the Nifty or the Bank Nifty. F&O volumes in India have increased dramatically in recent years, accounting for 90 percent of total volumes in the industry.
F&O, on the other hand, has its own set of myths and fallacies. Most novice traders consider F&O to be a less expensive way to trade stocks. Legendary investors like Warren Buffett, on the other hand, have referred to derivatives as “weapons of mass destruction.” The truth, of course, lies somewhere in the middle. It is feasible to benefit from online F&O trading if you master the fundamentals.
1. Use F&O as a hedge rather than a trade.
This is the fundamental principle of futures and options trading. F&O is a margin business, which is one of the reasons retail investors get excited about it. For example, you can buy Nifty worth Rs.10 lakhs for just Rs.3 lakhs if you pay a margin of Rs.3 lakhs. This allows you to double your money by three. However, this is a slightly risky approach to employ because, just as gains can expand, losses in futures might as well. You’ll also need enough cash to cover mark-to-market (MTM) margins if the market moves against you.
To hedge, take a closer look at futures and options. Let’s take a closer look at this. If you bought Reliance at Rs.1100 and the CMP is Rs.1300, you may sell the futures at Rs.1305 and lock in a profit of Rs.205 by selling the futures at Rs.1305 (futures generally price at a premium to spot). Now, regardless of how the price moves, you’ve locked in a profit of Rs.205. Similarly, if you own SBI at Rs.350 and are concerned about a potential fall, you can hedge by purchasing a Rs.340 put option at Rs.2. You are now insured for less than Rs.338. You record profits on the put option if the price of SBI falls to Rs.320, lowering the cost of owning the shares. By getting the philosophy correct, you can make F&O operate effectively!
2. Make sure the trade structure is correct, including strike, premium, expiration, and risk.
Another reason why traders make mistakes with their F&O deals is because the trade is poorly structured. What do we mean when we say a F&O trade is structured?
Check for dividends and see if the cost of carry is beneficial before buying or selling futures.
When it comes to trading futures and options, the expiration date is quite important. You can choose between near-month and far-month expiration dates. While long-term contracts can save you money, they are illiquid and difficult to exit.
In terms of possibilities, which strike should you choose? Options that are deep OTM (out of the money) may appear to be cheap, but they are usually worthless. Deep ITM (in the money) options are similar to futures in that they provide no additional value.
Get a handle on how to value alternatives. Based on the Black and Scholes model, your trading terminal includes an interface to determine if the option is undervalued or overvalued. Make careful you acquire low-cost options and sell high-cost options.
3. Pay attention to trade management, such as stop-loss and profit targets.
The last item to consider is how you handle the trade, which is very important when trading F&O. This is why:
The first step is to put a stop loss in place for all F&O deals. Keep in mind that this is a leveraged enterprise, thus a stop loss is essential. Stop losses should ideally be included into the trade rather than added later. Above all, Online Trading requires strict discipline.
Profit is defined as the amount of money you book in F&O; everything else is just book profits. Try to churn your money quickly since you can make more money in the F&O trading company if you churn your capital more aggressively.
Keep track of the greatest amount of money you’re willing to lose and adjust your strategy accordingly. Never put more money on the table than you can afford to lose. Above all, stay out of markets that are beyond your knowledge.
F&O is a fantastic online trading solution. To be lucrative in F&O, you only need to take care of the three building components.
What are the ways to benefit from futures contracts?
The dollar value of a one-tick move is multiplied by the number of ticks the futures contract has moved since you purchased it to calculate profit and loss on a trade.