Discover Corn Commodity Trading, Ride The Grains Wave Higher
With increasing use of grains as alternative fuels for transport, corn commodity trading is becoming an ever more interesting and exciting sector in the commodities universe.
As the most widely produced cereal crop in the world, corn will inevitably be closely monitored by producers and the wide range of end users, for hedging purposes and for traders looking to make profitable trades.
By some way the largest producer in the world is the USA, with about 40% of world production, followed by China, Brazil, Mexico and Argentina.
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The recent concerns over rises in global food prices once again highlighted the tension between uses of this important grain commodity as a source of ethanol as an alternative fuel for the main petroleum based fuels.
With a growing world population predicted and the US determined to reduce its dependence on Middle Eastern oil, we are likely to see long term upward pressure on corn prices.
Corn production in the USA
Primary uses of corn are animal feed, food products, alcohol and industrial use, including bio ethanol.
About 50% of corn grown in the US is genetically modified to increase pest resistance.
Corn needs to be planted in the spring as it cannot tolerate low temperatures, and so farmers will be anxious weather watchers in March, ready to start planting.
In fact, the timing of planting is important, as if it is left late this can affect yield and so the price on the commodity exchanges.
Planting is usually in mid April to mid May, with harvesting around September to October. The three main corn producing states are Iowa, Illinois and Nebraska.
So how can you follow what is happening in corn markets and use this information to inform your corn commodity trading decisions?
The United States Department of Agriculture (USDA) produces a number of reports that cover corn planting projections for the US as well as statement of stock levels along with similar figures for wheat and other grains, and soybean.
Prospective Plantings Report
This is a comprehensive report which is published by the USDA around March and is a survey of farmers. The report shows answers to questions on how many acres farmers intend to plant for corn as well as the other crops.
Remember the figures which show each state are only indicative and the outturn can be different due to numerous factors such as a farmer changing his plans, unusual weather patterns and crop infestation.
As an example, the Prospective Plantings Report March 2008 showed that corn acreage planted in 2007 was 93.6 million (m), while estimated acres to be planted for 2008 was 86.01 m, a drop of 8%.
Among the main producing states, Illinois was estimated to have 12.6 m acres planted (-5%), Iowa to come in at 13.2 m (-7%), Nebraska at 8.8 m (-6%) and Minnesota at 7.6 m acres, a fall of 10%.
From a corn commodity trading perspective, other things being equal this would suggest that corn futures prices could rise over the coming months.
Such an outcome would be more likely still if planting was delayed, and say demand from bio fuel producers was expected to increase.
The Prospective Plantings Report also shows similar data for soybean, barley, oats , wheat and other crops, with the US total and broken down by state.
So, for example, if corn acreage estimates are higher than what analysts have forecast, then this would be likely to depress CBOT corn futures prices. Monthly Crop Production This USDA report is issued around the 10th of each month and provides the latest estimates for the use (demand) and production levels (supply) of corn and other crops such as wheat, rice, cotton, and soybean both in the USA and the rest of the world. For example, the USDA monthly report for August 2008 sees higher production and use of corn for 2008, with corn production increasing by 573 million bushels to 12.3 billion bushels from the previous month’s report on the back of higher forecast yields and bigger harvest acreage.
This report also commented on how the weather had been “near ideal” across the Corn Belt since June, helping to boost yield expectations. Grain Stocks Report This USDA report gives information on the latest stock levels of corn and other grains in the USA and the world. As an example, the June issue points out that corn stocks were at 4.03 billion bushels on 1 June 2008, an increase of 14% on 1 June 2007. Information on other agricultural and soft commodities WheatSoybeanSugarRiceCoffeeCocoa
Combining the above data which are released at regular intervals with commodity trading chart information and your chosen trading system is a good way of making informed decisions as part of your commodity trading plan. Exposure to the price action for corn futures can be through an electronic trading system or by open outcry on CBOT. Using the electronic trading route it is possible to trade through the CME Globex system. An alternative to trading corn futures contracts on CBOT would be to gain exposure to grains through an ETF which tracks the sub-sector of an agricultural commodity index containing the main grain commodities. The future of corn commodity trading looks exciting because the interest in these contracts is increasing given that electronic trading has increased substantially. Related articles: With the challenges for meeting the growing world population and the demands for alternative fuels for transport, the agricultural commodities sector including corn looks very promising.
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