Corn futures are traded on the Chicago Board of Trade (CBOT), the New York Stock Exchange (NYSE Euronext), and the Tokyo Grain Exchange (TGE).
Corn futures prices on the CBOT are listed in dollars and cents per bushel and are traded in 5000 bushel lots (127 metric tons).
Corn futures on Euronext are traded in 50-tonne increments, with contract prices expressed in dollars and cents per metric ton.
Prices for TGE Corn futures are quoted in yen per metric ton and are traded in 50-tonne lots.
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.
How do you forecast corn prices in the future?
The minimum tick in the futures market for these contracts is a quarter of a penny, or 2/8ths. As an example, if maize was trading at $4.15 1/4 (four dollars and fifteen and a quarter cents), the price on a quote board would be simply 415’2. The unreduced fraction 2/8 is represented by the two.
What is the best way to trade maize commodities?
The use of a contract for difference (CFD) derivative instrument is one technique to trade corn. Traders can bet on the price of maize using CFDs instead of holding the underlying asset. The difference between the price of corn at the time of purchase and the current price is the value of a CFD.
CFDs on maize are available from a number of regulated brokers throughout the world. Customers make a deposit with the broker to serve as margin. CFDs offer traders the ability to gain exposure to corn prices without having to buy shares, ETFs, futures, or options.
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.
Why is corn so expensive?
Prices have been supported by tightening supply, rising ethanol demand, and good exports, which appears poised to continue into the new year.
Corn prices in the United States reached multi-year highs in April and May. On the Chicago Board of Trade, the March 2022 corn futures contract achieved a high of $6.405/bushel before falling down to little over $6/bu by the end of the year.
Despite the fact that the world’s top grower’s corn harvest has concluded, prices have held high due to sustained demand from the ethanol business and additional support from rising fertilizer prices. Corn is the principal feedstock for ethanol production in the United States, with the ethanol industry consuming about 40% of the country’s corn production.
Following a spike in the price of major feedstocks and export limitations imposed by providing countries, fertilizer prices have seen an extraordinary increase in recent months. All major fertilizer prices have risen dramatically in the recent year, with some more than doubling. Corn is a fertilizer-intensive crop, therefore a spike in fertilizer prices directly affects US farmers’ input costs and complicates planting decisions.
Fertilizer prices impact supply
Due to fertilizer price and availability constraints, a 3 million acre shift from corn to soybeans is feasible in the United States, with both corn and soybean acreage around 90 million acres in the marketing year 2022-23 (September-August). Because soybean requires less fertilizer, it is likely to grow more popular.
Rabobank is of the same mind. According to Rabobank’s Agri Commodity Market Research Outlook 2022, “corn acreage will shrink to 91.8 million acres in 2022-23 as input-squeezed margins, unfavorable crop rotations, and competition balance CBOT corn’s strong price and historically advantageous ratio to soybean.”
In a recent update, Platts Analytics stated that price is only one piece of the equation, and that availability will also play a role.
“While Platts Analytics set corn and soybean acreage for 2022-23 at 90 million acres, the price of natural gas will be a factor moving forward,” it said, adding that “it is our opinion that a recent drop in the price of nitrogen can move the needle slightly in favor of corn but not to the extent some are suggesting.”
Corn prices will need to remain high in order to be viable due to the higher input costs.
In an October update, IHS Markit stated, “The goal of the agricultural markets from here will be to keep prices high enough to the farmer for nitrogen demanding commodities like corn to preserve economics that are advantageous to maize production relative to other crops.”
Aside from fertilizers, increased demand from the ethanol industry is likely to support US maize prices.
Ethanol demand recovery boost DDGS supplies
For the past few months, ethanol output and cash margins in the United States have been hovering near all-time highs, resulting in higher DDGS supplies.
“Plants are bursting at the seams,” a source stated. On Nov. 24, full crush margins hit a high of 175.314 cents per gallon. According to the Platts Analytics ethanol cash margin model (prompt Argo ethanol + prompt Chicago DDGS), margins have fallen to just over 100 cents/gal as of mid-December, but are still 50 cents/gal higher than the same time in 2020.
“Ethanol production in the United States increased from 2020 to 2021 and will rise again in 2022,” according to Platts Biofuels Analytics Global Manager Corey Lavinsky. More supply will definitely enter the DDGS market as a result of this.
The US Grains Council noted that “ethanol run rates continue strong, bringing additional product into the market, but firm domestic demand is keeping values supported.”
Ethanol demand, which has bolstered US corn prices during the harvest, is expected to continue in 2022.
“The continued ethanol demand revival in the United States will increase export competition and boost US corn demand to a new high of 14.98 billion bushels in 2021-22. Production will barely outstrip demand, resulting in ending inventories of around 1.35 billion bushels “According to Rabobank.
Meanwhile, despite some slowing from the pace in 2020, maize export demand is expected to underpin prices through 2022. Total maize exports in the United States increased by 54% from 2019 to 2020, and USDA predictions for the 2021-2022 crop year only predict a 9% reduction.
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.
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.
How do you think about the future?
Futures Contracts: An Overview Futures are financial derivatives that bind the parties to trade an item at a fixed price and date in the future. Regardless of the prevailing market price at the expiration date, the buyer or seller must purchase or sell the underlying asset at the predetermined 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.
What method do you use to price commodity futures?
The following formula can be used to compute commodity futures prices: Add storage costs to the commodity’s current price. Multiply the result by Euler’s number (2.718281828), which is equal to the risk-free interest rate multiplied by the maturity time.