Last Updated on 23 July, 2024 by Trading System
Also known as maize, corn is one of the most popular cereal grains in the world. Corn is the seed of a plant (Zea mays) in the Poaceae family. Although the grain is native to Central America, it is widely cultivated in countless varieties throughout the world.
Corn Futures market trade on the CME exchange with a tick value of $12,5 and a contract size of 5000 bushels. Corn futures contracts are the best option for traders and hedgers who wish to gain quick and cheap exposure to the corn market.
Corn was first domesticated by indigenous people of Southern Mexico around 8000 BC, and it wasn’t until about 1492 that Columbus introduced it to Europe. Used in a wide range of industrial products, corn is currently the most-produced grain in the world.
It is one of the most-grown crops in the United States, and its futures contracts are traded on several commodity exchanges around the world.
Corn Futures Trading Strategy – Backtest
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Corn Futures Trading Strategy is a strategy used by traders to maximize their profits and minimize their risks when trading in corn futures. Corn is a tradable commodity, with prices determined by supply and demand, and it is subject to price fluctuations. Corn futures contracts are an agreement to buy or sell a certain quantity of corn at a predetermined price on a future date. Traders can use this futures contract to speculate on the future price of corn, or to hedge against the volatility of the market.
The most common corn futures trading strategy is to buy and sell contracts based on technical analysis and price trends. Technical analysis uses past price data and technical indicators to identify trends and predict future price movements. Technical indicators such as moving averages, oscillators, and support and resistance levels can be used to identify potential entry and exit points.
Traders may also use fundamental analysis to identify trading opportunities. Fundamental analysis looks at the underlying factors affecting the supply and demand of corn, including weather and other environmental conditions, government policies, and economic conditions. Fundamental analysis can be used to identify long-term trends, as well as short-term opportunities.
Traders should also consider diversifying their corn futures trading strategies. This means trading different types of corn futures contracts, such as nearby delivery contracts, deferred delivery contracts, and options contracts. This can help reduce risk, as each contract may be more or less sensitive to different market conditions.
Uses of Corn
Being a staple commodity for everyday life, corn futures contracts are actively traded on the commodity exchanges. There is a huge demand for corn because of the increasing number of ways it can be used, which includes the following:
Human food: In the grain form, corn is a staple food in many parts of the world, especially in Mexico, Africa, and Asia. It is also used to make breakfast cereals.
Livestock feed: Corn is the main source of grain feed for livestock, accounting for over 90% of feed grain production, while the rest of the maize plant is also used as fodder.
Biofuel: Corn is heavily used in the production of ethanol, which is increasingly becoming an important additive in gasoline. In addition, maize cobs are used as biomass fuel.
Industrial chemical: The starch from corn can be used to make fabrics, adhesives, plastics, batteries, crayons, glue, and others.
Alcoholic drinks: Corn is also used in the production of many alcoholic beverages, such as gins, rums, and whiskeys.
Sweetener: High-fructose corn syrup is used as a sweetener in soft drinks, cough syrups, candies, and ketchup.
The Largest Producers and Consumers of Corn
Corn is grown in almost all parts of the world, and with an annual production of 1.04 billion tonnes as of 2014, it is easily the most produced grain in the world.
The US is by far the largest producer of corn, followed by China, Brazil, India, Argentina, Ukraine, Mexico, Indonesia, France, and South Africa.
In terms of consumption, The US and China top the list again. In fact, the two countries account for about 54 percent of the world’s corn demand. Other top consumers are the European Union, Brazil, Mexico, India, Egypt, Japan, Canada, Vietnam, Argentina, and Ukraine. Corn transactions are mostly done via futures contracts.
Why Trade Corn Futures Contracts
Corn is one of the most-traded soft commodities, and there are reasons why traders find corn futures contracts very attractive. Apart from the direct stakeholders in the corn ecosystem, who come to the market to protect their various businesses, other corn traders are in the market for the following reasons:
Growing demand: There is an increasing demand for corn in many countries, including China, the US, and the EU. This is not unconnected to its numerous uses, especially in the production of biofuels. In fact, many countries have ethanol targets. As a result, there is high liquidity in corn futures contracts, making it one of the most preferred agricultural commodities for active trading.
Portfolio diversification: Fund managers and some retail investors come to the corn market to diversify their investment portfolio and ensure that their risk is spread over multiple asset classes. Diversification across different markets protects investors from both systematic and unsystematic risk.
Hedging against inflation: Fiat money normally lose their value over time, as the central banks print more notes and play with the interest rates. Agricultural commodities, like corn, are often used to hedge against inflation since they tend to increase in value when inflation bites.
How to Play the Corn Market
The easiest way to play the corn market is by trading corn futures contracts. Corn trades on the Euronext, Tokyo Grain Exchange (TGE), and the Chicago Board of Trade (CBOT), which is a part of the CME Group. Through the CME Globex electronic trading platform, traders from any part of the world can trade the contract.
On the CME exchange, corn contracts usually expire in the months of March, May, July, September, and December, and they are settled by physical delivery of the total quantity of corn traded. A contract is equivalent to 5,000 bushels of #2 yellow corn.
Futures contracts offer the opportunity to use a little amount to carry a huge contract — a trader is only required to deposit the margin. There other ways to play the corn market, such as corn options, corn ETFs, and corn CFDs, but they are not always easy to access.
Comparing corn futures contracts with other methods of trading corn.
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Factors Affecting Corn Prices
A lot of factors and data reports can affect the price of corn futures contracts, so as a corn trader, you must watch out for them. They include the following:
Weather events: Adverse weather conditions in the major growing regions do affect corn prices.
USDA World Agricultural Supply and Demand Estimate (WASDE) Report: This is a monthly forecast of the demand and supply expectations from various regions.
USDA Prospective Planting Report: Normally released in March, the report states the quantity and type of crop that U.S. farmers intend to plant.
Grain Stocks Reports: This report is issued quarterly by the National Agricultural Statistics Services (NASS), and it gives an update on stocks of corns and other major grains and oilseed crops.
Crop Production Reports: This a weekly U.S. export report.
Another factor to keep an eye on is the Chinese corn demand because China needs a lot of corn for ethanol production and human consumption.
Corn Futures Seasonality
Here is a chart showing the seasonal effects on the corn futures market:
Corn Futures Seasonality is the term used to describe the market cycles that occur in the corn futures market throughout the year. Corn futures, like many other commodities, have a seasonal tendency. This means that prices can be expected to move in certain patterns and cycles throughout the year.
Corn futures are primarily affected by the annual harvest cycle. As the summer months move into the fall and winter, corn prices tend to increase as the harvest comes in from the fields. This is because the demand for corn increases due to the need for animal feed and the production of ethanol. The supply of corn is lower during the winter months, which causes prices to increase.
The other factor that affects corn futures seasonality is the weather. Weather can have a significant impact on the supply and demand of corn. If there is a drought during the growing season, it can cause a decrease in corn yields, and therefore, a decrease in the supply. This can cause an increase in the prices of corn futures. On the other hand, a wet growing season can increase the amount of corn that is harvested, and prices may decrease as a result.
Corn futures seasonality is also affected by government policies. The government can influence the supply and demand of corn through its policies, such as subsidies and tariffs. These policies can cause the price of corn to go up or down depending on the government’s decisions.
Finally, corn futures seasonality is also affected by speculation. When investors believe that the price of corn will go up, they may purchase corn futures contracts, which will increase the price of corn. Conversely, if investors believe that the price of corn will go down, they may sell their contracts, which will decrease the price of corn.
Overall, corn futures seasonality is an important factor to consider when trading corn futures. By understanding the market cycles and their impacts on the price of corn, traders can make educated decisions about when to buy and sell.
How to trade Corn futures
Corn futures are contracts that give the buyer the right to purchase a specified amount of corn at a predetermined price at a future date. Corn futures are traded on the Chicago Board of Trade (CBOT) and are one of the most actively traded agricultural commodities. To be successful in trading corn futures, there are several important tips and considerations to keep in mind.
1. Monitor the Weather: Weather can have a significant impact on the corn market, as it affects the supply and demand of corn. Pay attention to forecasts of weather conditions in the major corn-producing states and regions, as these will affect the price of corn.
2. Be Aware of Other Factors: Aside from weather, there are a number of other factors that can affect the price of corn. These include the strength of the U.S. dollar, global demand for corn, and government policy.
3. Research the Market: Before trading corn futures, it is important to do thorough research on the market. Research the supply and demand of corn, the trends in the market, and the factors that can affect the price of corn.
4. Develop a Trading Plan: Before trading corn futures, it is important to develop a trading plan. This should include risk management strategies, the types of orders you will use, and a plan for exiting the market.
5. Use Stop Loss Orders: Stop loss orders are an important tool for limiting losses in the corn futures market. These orders allow you to set a limit on your losses, which will help to protect your capital.
6. Monitor Your Position: It is important to monitor your position in the corn futures market. This will help you to stay up to date with market trends and determine when it is time to buy or sell.
7. Avoid Leverage: Leverage can be dangerous in the corn futures market, as it can lead to larger losses. If you do use leverage, be sure to use it sparingly and only with adequate capital.
By following these tips, traders can increase their chances of success in trading corn futures. It is important to remember that trading corn futures is a risky endeavor and that losses can occur. Therefore, it is important to be aware of the risks associated with trading and to exercise caution.
Conclusion
Used in the production of human food, livestock feed, biofuels, alcoholic drinks, industrial chemicals, and sweetening syrup, corn is one of the most versatile agricultural commodities in the world. Corn is grown in every part of the world, and the futures contracts are actively traded on several commodity exchanges across the globe.
Here is our archive with articles about other tradeable futures markets.
FAQ
How are Corn Futures contracts used for trading and hedging?
Corn Futures contracts allow traders to speculate on future corn prices or hedge against market volatility by agreeing to buy or sell corn at a predetermined price on a future date.
How can I trade corn futures on the Chicago Board of Trade (CBOT)?
Corn futures are traded on the CBOT through the CME Globex electronic trading platform. Contracts usually expire in March, May, July, September, and December.
How can I enhance my trading strategies for corn futures?
Explore advanced technical analysis tools, consider automated buy and sell signals, stay updated with daily market analysis, and leverage educational resources. Corn futures seasonality is influenced by factors such as the annual harvest cycle, weather conditions, government policies, and speculation.