Trade Corn Futures For Key Grain Commodity Exposure
Along with the other major grains, corn futures prices are a major indicator of the trends in world food markets.
With concerns over supply problems this particular area has attracted considerable interest in recent months.
The futures market for corn is focused on the Chicago Mercantile Exchange and Chicago Board of Trade exchanges, with trading now done mainly through the new CME Globex platform. CME Group in effect influences prices for the world’s corn market, through the activities in the futures and options market.
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Global Driver
US Department of Agriculture (USDA) figures suggest US farmers will plant more soybean and wheat in 2008 and less corn and cotton.
Corn futures have recently reached record highs on CBOT while wheat and soybean have fallen sharply.
In December 2007 President Bush signed new legislation which requires a five-fold increase in renewable fuels by 2022, to reduce the US dependency on Middle East oil.
USDA estimates that 33% of US corn will be used for biofuels in the next decade, up three-fold from 11% in 2002.
Farmers use crop rotation schemes as a means of preventing disease and mitigating pest infections, and this can cause a surge in corn futures if say they replace corn planting with soybean.
The main challenges going forward for the foreseeable future will be agricultural reform, particularly the issue of subsidies, and the substitution impact of growing demand pressures for ethanol use in biodiesel production.
Trading corn futures Along with wheat and soybeans, corn is a major agricultural commodity and watching the movement of these three grain futures can give an indication of future expectations for demand and supply in global food markets.
Corn is included along with other major grains in all the main commodity indexes available in the market. It is also possible to gain exposure to grains using exchange traded funds and exchange traded commodities.
Just considering the wide uses of corn from food ingredients to industrial products to medicine and transport, it is clear how significant a surge in corn prices can be for the world economy.
Average daily volume of corn futures contracts has grown considerably over the last 8 years or so. In April 2000, average daily contracts were 75,000 and this has surged to just short of 300,000 in April 2008.
Electronic Trading accounted for about 5% of total corn futures contracts traded on CBOT in 2006, while in 2008 over 90% of futures traded are on the CME Globex platform, and only 10% on the open outcry.
The contracts on CME Globex are for 5,000 bushels with a tick size of 0.25c a bushel, which implies $12.50 per contract.
Ticker symbols are: Open Auction: C, Electronic : ZC. There are also mini corn futures contracts whose symbols are: Open (YC), Electronic (XC); with contract size of 1,000 bushels. For these mini-contracts the tick size is 0.125c per bushel ($1.25 per contract).
Corn crop years are from December to September. The futures contracts end in July, September, December, March and May. Last trading day is the business day prior to the 15th of the calendar month in which contracts expire.
Trading hours on CME Globex are 6.00 pm to 6.00 am and 9.30 am to 1.15 pm, Central Time, Sunday to Friday, while open auction is from 9.30 am to 1.15 pm, when the two platforms trade side-by-side.
For the mini corn contracts the equivalent numbers are $270 and $200 respectively.
If you are considering trading corn futures you will first want to take advice from your financial advisor who will set out the potential for gains and losses to your capital.
Many brokers now provide trading platform packages and offer demo accounts and software support.
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