Corn Trading


The Ultimate Guide

Why is Corn Valuable?

Corn, also known as maize, is a cereal grain native to Central America. It is a source of food for humans and animals as well as a key ingredient in fuel production.

Ancient farmers in the region that is now Southern Mexico first domesticated corn about 10,000 years ago.

However, it wasn’t until 1492 that European countries discovered the crop when Christopher Columbus brought it back from Cuba. 

A growing number of diverse industries use corn to produce their products, and annual production of the crop now exceeds that of rice and wheat. Therefore, corn plays a critical role in the world economy.

How is Corn Grown?

Corn is a member of the grass family and grows in diverse climates and regions around the world.

There are six varieties of the crop. All varieties grow in a similar manner. Farmers deposit seeds in an inch or two of soil, and the seeds germinate in 5 to 12 days. The corn variety and soil temperature impact the timing of this process.

As the seeds sprout, they develop little leaves that resemble blades of grass. After further growth, the plants develop thick stalks and flat pointed leaves. Stalks can grow as high as 15 feet.

Once the stalks reach two-thirds of their full height, they begin the process of reproduction through pollination by wind.  To ensure successful fertilization, farmers plant the seeds in short rows or blocks. This allows the silks from the female flowers to easily reach neighboring plants.

Corn Grown in Rows
Corn Grown in Rows – Image via Pixabay

The Six Varieties of Corn

Corn VarietyDescription
Sweet cornA naturally sweet variety that is harvested immaturely
PopcornCharacterized by a hard outer shell and minimal soft starch content
Flour cornOne of the oldest varieties of corn with a soft starch content
Dent cornKnown as field corn, it accounts for 99% of US production
Flint cornCharacterized by a hard glassy outer shell and grown primarily in Central and South America
Pod cornGrown mainly for ornamental purposes

Corn Grown in Rows – Image via PixabayThe timing of harvests can have a big impact on the flavor of the corn. Corn harvested during the earlier “milk” stage is characterized by its sweetness, while corn harvested in the later “dough” stage is characterized by its starchy interior.

Planting and harvesting seasons vary by region and climate conditions. In the United States, which is the largest corn producer, most corn grows in the plains of states of the Midwest. Planting occurs between April and June, and harvesting takes place between October and November. The southernmost regions generally plant first, while northern regions wait for the snow to melt and soil to thaw.

Corn can be rotated with other crops such as soybeans, so at the beginning of the planting season, farmers have to decide which crop to grow.

The corn-soybean spread is one tool farmers use to make this decision. This spread is the number of bushels of corn needed to buy a bushel of soybeans. When the ratio is below 2.2 to 1, corn is historically expensive, while a ratio above 2.4 to 1 signals historically expensive soybeans.

World's Biggest Corn Producers

Top 10 Corn Producing Countries

RankFlagCountryCorn Produced (Million Metric Tons)
#1Flag of USAUnited States of America377.5
#2Flag of ChinaChina224.9
#3Flag of BrazilBrazil83
#4Flag of IndiaIndia42.3
#5Argentina FlagArgentina40
#6Flag of UkraineUkraine39.2
#7Flag of MexicoMexico32.6
#8Flag of IndonesiaIndonesia19
#9Flag of FranceFrance17.1
#10Flag of South AfricaSouth Africa15.5

Corn has many uses, and surprisingly, the most important ones do not involve food for humans. About two-thirds of corn produced in the United States goes to livestock feed and ethanol fuel.

Top 7 Uses of Corn

Use of CornDescription
Livestock Feed
Livestock Icon
Corn accounts for more than 95% of feed grain production in the United States.
Ethanol
Gas Icon
Corn is the main feedstock used to produce ethanol, which is an important ingredient in gasoline.
High-Fructose Corn Syrup
Candy Logo
This product made from corn starch is used to sweeten many products including ketchup, candies and soft drinks.
Corn Starch
Cooking Icon
This kitchen ingredient is used to thicken sauces and is also a chemical additive in some medical products.
Cereal
Cereal Icon
Many breakfast cereals contain corn.
Alcoholic Beverages
Liqor Icon
Some whiskeys and spirits are made with corn.
Miscellaneous Uses
Crayons Icon
A diverse array of everyday items contain corn including:
  • Plastics
  • Batteries
  • Deodorants
  • Cough drops
  • Diapers
  • Matchsticks
  • Carpets
  • Crayons
  • Glue
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    What Drives the Price of Corn?

    The price of corn is usually highly correlated with the price of other agricultural products such as wheat and barley. Many of the economic factors that move corn prices specifically include:

    1. Ethanol Market
    2. Crude Oil Prices
    3. Chinese Demand
    4. The US Dollar
    5. Climate

    Ethanol Market  

    Corn is playing a growing role in ethanol production, so demand for this fuel additive could have a big impact on corn prices. 

    The US government heavily subsidizes corn farmers to boost ethanol production, and farmers make decisions about which crops to grow based on subsidies. If ethanol demand were to dissipate, then markets would have an excess supply of corn, and prices would likely head lower.

    Crude Oil Prices

    Because corn is increasingly being used to make fuels, its relationship with oil prices can’t be ignored.

    A rise in crude oil prices would likely cause a rise in demand for biofuels as consumers switch to cheaper alternatives.

    In fact, agricultural commodities used in fuel production have high price correlations with crude oil.

    Chinese Demand

    Analyzing corn prices without mentioning China would be a huge omission. China is the world’s largest consumer of energy and largest importer of petroleum. The country’s energy needs are expected to remain enormous as its economy continues to grow.

    China is seeking out cheaper and more environmentally-friendly energy sources, and biofuels will play some role in this plan. Any slow down in growth in China could spell trouble for corn prices, while an uptick could lead to higher prices.

    The US Dollar

    As the world’s reserve currency, the dollar can often dictate the direction of commodity prices. When the value of the dollar drops against other currencies, it takes more dollars to purchase corn than it does when the price is high. Put another way, sellers of corn get fewer dollars for their product when the dollar is strong and more dollars when the currency is weak. The United States is the leading global corn producer, so it is unlikely that corn would be quoted in a different currency any time soon.

    Climate

    Climate can have a big effect on yields for corn crops.

    Moderate changes in weather patterns can increase the number of severely hot days in the growing season. These heat waves can dramatically reduce crop output and create price spikes.

    Corn Production and Climate Change
    Hot Weather Can Affect Corn Production – Image via Pixabay

    Farmers continue to try to develop more heat-resistant strains of corn, and production may shift north into Canada. In the meantime, corn traders have to carefully monitor weather patterns

    4 Reasons You Might Invest in Corn

    Investors purchase agricultural commodities, such as corn, for a variety of reasons, but the following are most common:

    1. Bet on Ethanol Demand
    2. Bet on Chinese Demand
    3. Inflation Hedge
    4. Portfolio Diversification

    Bet on Ethanol Demand

    Consumption of biofuels including ethanol is likely to grow in the years ahead, and investing in corn is a way to benefit from this trend.

    Over 60 countries, including the European Union nations, have ethanol targets or mandates in place, and this number is expected to grow as more countries seek cleaner energy sources. 

    Bet on Chinese Demand

    Chinese demand for corn is likely to grow for many reasons including:

    • The country has targets in place to increase biofuel consumption in the years ahead.
    • The country has over a billion people that it needs to feed.
    • China’s growing wealth may lead to more meat consumption and greater demand for livestock feed.

    Inflation Hedge

    Investing in corn is one way to protect yourself against inflation. Agricultural commodities including corn are certain to become more expensive if world economies experience bouts of inflation.

    Overly accommodative monetary policies from the world’s largest central banks have kept global interest rates low and created speculation in many different asset classes. At some point, this speculation could show up in commodity markets, and corn prices could soar. A weak dollar, in particular, could create inflation and lead to higher corn prices.

    Portfolio Diversification

    Most traders are overly concentrated in stocks and bonds. Investing in corn provides traders with diversification of risk in their portfolios.

    Should I Invest in Corn?

    Corn prices can be volatile, and traders should expect large price swings.

    However, investing in corn can be part of a sensible plan to mitigate risk and diversify the composition of assets in a portfolio.

    Investing in a basket of commodities that includes corn, other agricultural commodities, metals and energy can accomplish two goals:

    1. It can provide protection against inflation.
    2. It can protect a trader from the volatility of movements in individual commodities.

    Including corn in this basket may make sense since it benefits from two massive economic macro-trends:

    1. Emerging Market Growth: China, India and Brazil are among the many fast-growing countries that will have enormous food and energy needs in the years ahead.
    2. Climate Change: Global warming is a positive catalyst for corn prices in two ways – It could lead to lower crop yields, and it could increase demand for biofuels.

    However, traders should also consider the risks of investing in corn.

    1. An emerging market slowdown could seriously limit demand for corn.
    2. Advancements in green energy sources such as solar, hydroelectric and wind power could reduce demand for biofuels.
    3. Heavy subsidization could lead to overproduction of corn.

    What Do the Experts Think About Corn? 

    Corn Experts

    Experts see reasons for both optimism and pessimism about corn prices in the future. On the one hand, there is a massive supply of the commodity, which is creating a serious overhang on the market:

    There’s too much harvest yet to come, too much corn being stored on the ground that will be pushed into the pipeline early rather than later. 

    – Matthew M. Pierce, director of commodity consulting, Futures International LLC

    However, despite the oversupply, there may be reasons for optimism. Jason Ward, director of grains and energy at Northstar Commodity, believes corn prices have room to move lower as excess supply gets absorbed by the market. However, he sees a silver lining in the ethanol market:

    … a lot of ethanol plants are in expansion mode. We need all of that because these corn yields, this year, are unbelievable.

    – Jason Ward, director of grains and energy, Northstar Commodity

    How Can I Invest in Corn?

    Investors have several ways to invest in corn:

    Corn Trading Methods Compared

    Method of InvestingComplexity Rating (1 = easy, 5 = hard)Storage Costs?Security Costs?Expiration Dates?Management Costs?

    Leverage?

    Regulated Exchange?
    Corn Futures5NNYNYY
    Corn Options5NNYNYY
    Corn ETFs (ETNs)2NNNYNY
    Corn Shares2NNNNYY
    Corn CFDs3NNNNYY

    Corn Futures

    The Chicago Mercantile Exchange (CME) offers a contract on corn that settles into 5,000 bushels or about 127 metric tons of #2 yellow corn.  Traders can also deliver #1 yellow corn at a 1.5 cent per bushel premium or #3 yellow corn at a 1.5 cent per bushel discount.

    The contract trades globally on the CME Globex electronic trading platform and has expiration months of March, May, July, September and December.

    Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, the contracts are physically settled by delivery of corn.

    Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing. 

    Corn Options on Futures

    The CME offers an options contract on corn futures.

    Options are also a derivative instrument that employs leverage to invest in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.

    Options buyers pay a price known as a premium to purchase contracts. An options bet succeeds only if the price of corn futures rises above the strike price by an amount greater than the premium paid for the contract. Therefore, options traders must be right about the size and timing of the move in corn futures to profit from their trades

    Corn ETFs

    These financial instruments trade as shares on exchanges in the same way that stocks do. Only one ETFTeucrium Corn Fund – offers a pure play investment in corn. The fund invests in corn futures contracts. Other ETFs such as PowerShares DB Agriculture Fund and UBS ETRACS CMCI Agriculture Total Return ETN invest in corn along with many other agricultural commodities.  

    Top 3 Corn ETFs by Assets Under Management

    Teucrium Corn FundPowerShares DB Agriculture FundUBS ETRACS CMCI Agriculture Total Return ETN

    Shares of Corn Companies

    There are no public companies that are a pure-play investment in corn. However, traders that want exposure to corn prices may want to consider buying shares in large agribusinesses that provide seeds, fertilizers and pesticides to farmers:

    CompanyCurrent PriceDescriptionExchangeFoundedEmployeesInteresting Fact
    Monsanto
    Global agricultural company that provides seeds, genomic and other products to farmers.New York (NYSE)190120,500In 1983, Monsanto was one of four organizations who introduced genes to plants.
    The Mosaic Company
    Global agricultural company that sells crop nutrients to farmers.New York (NYSE)20048,000Mosaic is the United States' largest producer of phosphate fertilizer and potash.
    Nutrien
    Nutrien Ltd Logo
    Global agricultural company that sells fertilizer and feed products.New York (NYSE)19755,700Nutrien was formed in January 2018 after the Potash Corporation of Saskatchewan and Agrium merged.

    CFDs

    One way to invest in corn is through the use of a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of corn. The value of a CFD is the difference between the price of corn at the time of purchase and its current price.

    www.plus500.comOpening an Account with Plus500

    Many regulated brokers worldwide offer CFDs on corn. Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that trader can have exposure to corn prices without having to purchase shares, ETFs, futures or options.

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