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.
What is the best way to read grain 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 process of grain trading?
The difference between the price of a commodity in the local market and the price of the commodity in the futures market is known as grain basis. As an example, consider corn. On April 10th, a farmer in Fargo, North Dakota, has maize in the bin and wants to sell it. His bushel price at the local elevator is $4.50. May Corn is the front month for corn, and it is now trading at $4.75 on the CBOT.
This farmer in Fargo, North Dakota’s basis is “25 under May,” which indicates his cash prices are 25 cents lower than the May corn futures. When farmers talk about selling corn, elevators and ethanol plants talk about buying corn, they usually use the phrase “basis.”
How do you go about purchasing grain futures?
Your ordinary brokerage account can be used to purchase ETF shares. To trade grain futures, open and fund an account with a commodities futures broker who is a member of the National Futures Association. Consult a broker representative about your trading objectives.
What is the basis behind grain prices?
The amount in cents per bushel that a particular local cash price is above or below a futures price for a specified delivery month is referred to as basis. As a formula, it’s as follows: Where t equals time, Basist = Cash Pricet – Futures Pricet
What factors influence corn prices?
The interaction of supply and demand functions determines prices, which has historically been impacted by government agriculture policies. Examples of such policies include acreage reduction initiatives that impacted corn and wheat supplies, as well as export schemes that influenced demand.
What is the best way to trade wheat futures?
What is the best way to trade wheat futures? Wheat futures contracts are traded electronically through Schwab and are offered by the CBOT on the Globex trading platform. To trade wheat futures, you’ll need a futures account that has been approved.
What is the procedure for buying and selling corn futures?
What is the best way to trade corn futures? Corn futures are traded electronically on the Globex platform at 5,000 bushels per contract from 8:00 p.m. U.S. ET to 2:20 p.m. U.S. ET the next day. To trade corn futures, you’ll need a futures account that has been approved.
What is the purpose of futures contracts?
A futures contract is a legally enforceable agreement to acquire or sell a standardized asset at a defined price at a future date. Futures contracts are exchanged electronically on exchanges like the CME Group, which is the world’s largest futures exchange.
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.