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Thursday, December 1, 2022

Chicago Board Of Trade Corn Futures

Suit Any Trading Style

Role of CBOT in determining local cash prices | Understanding the commodity markets

The corn futures market can be an excellent place for applying a fundamental or technical approach. If you rely mainly on fundamentals, there are plenty of reports that you can base your trading decisions on. If you are a technical trader, you can rely on the price charts to do your analysis. Both trading styles work well in the corn market.

Advantages Of Grain Contracts

Because grain is a tangible commodity, the grain market has a number of unique qualities. First, when compared to other types of commodities contracts, such as the various energy products, grains often have a lower margin, making it easy for speculators to participate. Also, grains generally aren’t one of the bigger contracts , which accounts for the lower margins.

The fundamentals in the grains are fairly straightforward: Like most tangible commodities, supply and demand will determine the price. Weather, transportation, and other conditions will also have an effect.

Key Reports For Corn Futures

Whether you consider yourself a technical or fundamental trader, there are three reports that you should keep a close eye on as they can have a significant impact on the corn futures market.

USDA Report

Every Thursday, the USDA releases a report on exports. The report contains a detailed analysis of the demand for corn exports. It should go without saying that a strong export outlook is often favorable for the corn market and corn futures price. Besides, it is also a good idea to compare US corn exports to other exporting countries. Doing so will allow you to gauge any major discrepancies that may exist.

Planting Intentions Report

The USDA produces and releases this report at the end of March. It details the amount of acreage that farmers allocate for the planting of various crop commodities. Using this report, you can forecast the total expected size of the crop production for the season.

Grain Stocks Report

The National Agricultural Statistics Services issues this report every quarter. It offers a state-by-state update on the stockpiles of corn and other grains.

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How To Read Futures Price Tables

Price is the key statistic generated by futures markets, although the volume of trade and the number of outstanding contracts also are important. Prices are available from a variety of sources, including many daily newspapers. Most papers also report volume and open interest.

Since wire services and newspapers vary in their format and terminology, here we will describe price-reporting formats in general terms, using CBOT Corn Futures Prices as an example.

Recent Convergence Performance Of Cbot Corn Soybean And Wheat Futures Contracts

Blame it on the Rain: 22nd Feb 2012 CBOT &  Chicago ...

Futures markets play a key role in price discovery and risk transfer in many agricultural markets. Concerns have been raised about the performance of Chicago Board of Trade grain futures contracts in a number of recent forums, most prominently at the Agricultural Forum hosted by the Commodities Futures Trading Commission on April 22nd, 2008. Market participants have expressed concern that futures prices have been artificially inflated since the Fall of 2006, contributing to weak and erratic basis levels and a lack of convergence of cash and futures prices during delivery. In this article, we focus on the nature and consequences of recent convergence problems in CBOT corn, soybean and wheat futures contracts. We also briefly comment on proposals for changing the contracts to address the problems that have surfaced recently.

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Who Is This For

Hedgers such as producers and consumers of grain seeking to protect themselves against adverse price movements with a view that the international market is an alternative hedge . The Chicago Corn Futures are also traded by speculators who aim to make a profit on short-term movement in the future contract price. As well as speculators who hope to benefit from the spread opportunities between the local vs international market. Anyone involved with the agricultural industry can use this product to help contain costs and enhance income.

Know Who You Are Up Against

This is important as trading is a world where market sentiments clash. To perform efficiently on the financial markets, you must know the rest of the participants and their behavior.

Corn futures are a preferred investment choice by consumers and producers in the first place. They buy and sell futures to lock in the price. Doing so guarantees purchases/sales with future delivery. Corn producers, for example, usually employ short hedges to lock their preferred selling price in advance. At the same time, the consumers rely on long hedges to strike the optimal purchase price for the real commoditys future delivery.

What you need to know about these market participants is that they are reliable and usually come back each year/season. They have serious intentions as their production relies on corn delivery/sales. They typically trade in large quantities, which may positively affect the assets price. The behavior of corn producers and consumers is usually a great benchmark for the markets health.

Corn futures are also enjoyed by speculators, whose primary goal is to benefit from the price movements and the markets volatility. One of their characteristics is a more aggressive trading strategy. They typically buy and sell with no intention of possessing the asset.

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Consider The Seasonality Factor

Part of being familiar with the underlying commodity has to do with understanding the seasonality of price patterns. During the late June to early July period, corn usually hits its peak price levels for the year. Mid-to-late July is when corn goes through its pollination phase, and moisture and temperature levels are critical.

When this particular period follows some sort of distress , the market tends to panic, which skyrockets the prices. When such a scenario occurs, the prices eventually start falling again naturally. Typically after traders realize that such extreme situations are generally rare and only last a short while.

On the other hand, corn prices hit their lows around the annual harvest period, which reaches its peak in November. The reason is that around that time, all farmers start selling their produce. This means the market faces a sudden boom in supply that exceeds the demand at that particular moment.

During the winter period, the price of corn usually stabilizes, and the volatility levels decrease. This is when you should shift your focus from domestic demand to exports, as they are a core factor for driving the price of corn around that time.

Requirements For Designation As A Contract Market Under The Grain Futures Act Of 1922

Mike Forrester Reflects on 50-years of trading at the CBOT

a. The keeping of a record with prescribed details of every transaction of cash and future sales of grain of the Board or its member in permanent form for three years, open to inspection of representatives of the Departments of Agriculture and of Justice.

b. The prevention of the dissemination by the Board or any member of misleading prices.

c. The prevention of manipulation of prices or the cornering of grain by the dealers or operators on the Board.

d. The adoption of a rule permitting the admission as members of authorized representatives of lawfully formed co-operative associations of producers having adequate responsibility engaged in the cash grain business, complying with and agreeing to comply with, the rules of the Board applicable to other members, provided that no rule shall prevent the return to its members on a pro rata patronage basis the money collected by such association in the business, less expenses.

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What Are Grain Futures Contracts

Anyone looking to invest in grain futures should know that the risk of loss is substantial. This type of investment is not suitable for everyone. An investor could lose more than originally invested and, therefore, only risk capital should be used. Risk capital is the amount of money that an individual can afford to invest, which if lost, would not affect the investor’s lifestyle.

A grain futures contract is a legally binding agreement for the delivery of grain in the future at an agreed-upon price. The contracts are standardized by a futures exchange as to quantity, quality, time, and place of delivery. Only the price is variable.

There are two main market participants in the futures markets: hedgers and speculators. Hedgers use the futures markets for risk management and withstand some risks associated with the price or availability of the actual underlying commodity. Futures transactions and positions have the express purpose of mitigating those risks. Speculators, on the other hand, generally have no use for the commodities in which they trade they willingly accept the risk involved in investing in futures in return for the prospect of dramatic gains.

Notes & Data Providers

Stocks: Real-time U.S. stock quotes reflect trades reported through Nasdaq only comprehensive quotes and volume reflect trading in all markets and are delayed at least 15 minutes. International stock quotes are delayed as per exchange requirements. Fundamental company data and analyst estimates provided by FactSet. Copyright © FactSet Research Systems Inc. All rights reserved. Source: FactSet

Indexes: Index quotes may be real-time or delayed as per exchange requirements refer to time stamps for information on any delays. Source: FactSet

Data on U.S. Overview page represent trading in all U.S. markets and updates until 8 p.m. See Closing Diaries table for 4 p.m. closing data. Sources: FactSet, Dow Jones

Stock Movers: Gainers, decliners and most actives market activity tables are a combination of NYSE, Nasdaq, NYSE American and NYSE Arca listings. Sources: FactSet, Dow Jones

ETF Movers: Includes ETFs & ETNs with volume of at least 50,000. Sources: FactSet, Dow Jones

Bonds: Bond quotes are updated in real-time. Sources: FactSet, Tullett Prebon

Currencies: Currency quotes are updated in real-time. Sources: FactSet, Tullett Prebon

Cryptocurrencies: Cryptocurrency quotes are updated in real-time. Sources: CoinDesk , Kraken

Calendars and Economy: ‘Actual’ numbers are added to the table after economic reports are released. Source: Kantar Media

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Corn Futures Contract Specs Calculation

Lets assume that the front month corn contract is trading at $4.50/bushel and makes a five-cent move up. Based on this, the value of the price move in terms of a single standard corn futures contract is as follows:

  • For a full-size corn futures contract a one-cent movement is equal to $50
  • For a micro-size corn futures contract 20% of the full contract

$0.05 x 5,000 bushels = $250 As such, a five-cent move in corn would equate to a $250 move in terms of a single standard futures contract.

What about a $0.12 move in corn? Lets see what that would look like:

$0.12 x 5,000 bushels = $600 So a twelve-cent move in corn would equate to a $600 move in terms of a single standard futures contract.

If we break this calculation down further, we see that a one-cent move in corn is equivalent to $50. If you multiply $50 per contract by the price move in cents, you will know exactly how much the futures contracts value has increased or decreased. Furthermore, you should now be able to identify the corresponding profit or loss of your position.

Mini Corn Contracts

There are also tradeable mini contracts for corn. A single mini corn contract represents 1,000 bushels, which is 20 % of the full contract value.

It stands to reason that the mini corn contracts tick value would also be 1/5 of the value of the standardized contract. Specifically, a one-cent price move in the mini-corn contract would be equivalent to $10 in the standard one.

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Requirements For Designation As A Contract Market Under The Future Trading Act Of 1921

The Chicago Board of Trade: 165 Years of American Ag ...

a. When located at a terminal market where cash grain is sold in sufficient amount and under such conditions as to reflect the value of the grain in its different grades, and where there is recognized official weighing and inspection service.

b. When the governing body of the board adopts rules and enforces them, requiring its members to make and keep the memorandum of all transactions in grain, whether cash or for future delivery, as directed by the Secretary.

c. When the governing body prevents the dissemination by the board or any member thereof of false, misleading, or inaccurate report, concerning crop or market information or conditions that affect or tend to affect the price of commodities.

d. When the governing board provides for the prevention of manipulation of prices, or the cornering of any grain by the dealers or operators upon such board.

e. When the governing body admits to membership on the board and all its privileges any authorized representative of any lawfully formed and conducted co-operative associations of producers having adequate financial responsibility:

f. ‘Provided, that no rule of the contract market against rebating commissions shall apply to the distribution of earnings among bona fide members of any such associations.’

g. When the governing body of the board shall make effective the orders and decisions of the commission appointed under section 6.

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Grow Your Finances In The Grain Markets

Temperature, precipitation, and the changing needs of customers all contribute to the supply and demand for commodities like wheat, corn, or soybeans. All of these changes greatly affect the market for agricultural commodities, and grain futures are essential to managing these price swings and providing global benchmark prices. Read on to dig into and learn about the seven major products of the grain markets.

How To Trade Corn Futures

The answer to this question is pretty obvious just make an account with a broker, and you are good to go. However, in the next few paragraphs, we will focus more on the essentials that you should be aware of and provide some useful tips and tricks to help you understand in detail how to trade corn futures successfully. We will cover everything from the commoditys specifics and factors influencing its price to technical topics like margin trading limits, leverage, and the best industry reports to keep an eye on.

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Advantages Of Futures Contracts

Because they trade at the Chicago Board of Trade , futures contracts offer more financial leverage, flexibility, and financial integrity than trading the commodities themselves.

Financial leverage is the ability to trade and manage a high market value product with a fraction of the total value. Trading futures contracts is done with a performance therefore, it requires considerably less capital than the physical market. Leverage provides speculators a higher risk/higher return investment.

For example, one futures contract for soybeans represents 5,000 bushels of soybeans. Therefore, the dollar value of this contract is 5,000 times the price per bushel. If the market is trading at $5.70 per bushel, the value of the contract is $28,500 . Based on Jan. 23, 2022, exchange margin rules, the maintenance margin required for one contract of soybeans is around $2,650. So for approximately $2,650, an investor can potentially leverage $28,500 worth of soybeans.

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