Over one billion tonnes of corn is produced worldwide every year, mostly from the US, China, Brazil, Argentina, and Ukraine. But what is the corn futures contract and how can you trade it?
What is the corn futures contract?
In commodity trading, corn is known as a ‘soft’ commodity, along with soybeans, coffee, cocoa, orange juice, sugar, wheat and cotton. This is in contrast to the ‘hard’ commodities of precious metals and energies.
The corn futures contract allows buyers and sellers to agree on a price for corn today for delivery at a future date. Its price is an important benchmark used by the global corn market.
The price of the contract is quoted in ‘cents per bushel’. Although it might seem a rustic measurement, it is the foundation on which the corn futures market stands.
The corn futures contract is traded on exchanges such as the Chicago Board of Trade (CBOT) and is used by farmers, traders, and other market participants to manage price risk and speculate on the future price of corn.
Corn futures trading history
Corn futures trading has a rich history that dates back to the roots of agricultural commerce. Farmers and traders first came together to mitigate the uncertainties of crop yields and prices.
Then, the concept evolved over time. It transitioned from simple handshake agreements to the sophisticated market mechanisms we know today.
A few key dates stand out in the history of corn futures trading:
1865: The Chicago Board of Trade (CBOT) launches the first corn futures contract. This provides traders with a formalised platform to speculate and hedge against price fluctuations.
1936: The Commodity Exchange Act marks a pivotal moment, bringing regulations to the commodity markets, including corn futures. This act sets the stage for a more organised and transparent trading environment.
1970s: The commodities trader Richard J. Dennis, known as the ‘prince of the pit’, makes a fortune trading corn. He famously turns an initial investment of $1,600 into over $200 million in just 10 years by using a trading strategy based on trend-following and risk management.
2012: Corn prices spike due to a severe drought in the US Midwest. Some traders and farmers make good profits by hedging using corn futures contracts. The knock-on effect is an increase in global food prices.
2019: Ethanol production and renewable energy initiatives amplify the impact of corn futures on energy markets.
Trading Corn futures
Corn futures are traded on various commodity exchanges around the world, including the Chicago Board of Trade (CBOT) in the United States, the Dalian Commodity Exchange (DCE) in China, and the Tokyo Grain Exchange (TGE) in Japan.
Although corn futures were initially created to help corn producers and processors manage the risk of future price fluctuations, now more traders are using the corn futures contract as an instrument to diversify their portfolios and risk profiles.
Trading corn futures is one way for investors and traders to speculate on the price of corn, and there are a range of ways to do this. Out of the various instruments available, Contracts for Difference (CFDs) is a popular choice. These have the advantage of enabling trading on margin, which allows increased exposure with lower capital.
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