Corn futures began trading at the Chicago Board of Trade in 1877 and is the largest Agricultural futures contract in the world. For those who may be interested in trading Corn futures or options, a bit of background on this market may be beneficial.
Corn is grown in practically all of the temperate and tropical regions of the world, in conditions ranging from below sea level to 12,000 feet above sea level, from the arid and semidry plains of Russia and North Africa, to the subtropical regions of Florida.
It is grown in countries with as little as eight inches of annual rainfall, like Morocco, as well as areas with over 200 inches of rainfall, such as parts of India. Growing season ranges from the very short timeframe of three months in Quebec to the nine-month season in tropical Colombia.
While corn is grown in nearly every state of the U.S., production is concentrated in the central portion of the country called the corn belt. About 95% of the corn grown is dent corn, which is named for the indentation in the corn kernel caused by shrinkage of the starch. It is grown extensively in the Midwest and is traded in both the cash and futures markets.
Planting in the corn belt begins in the southern states as early as March, in the corn belt by late April, and is completed in the northern areas by the end of May. Maximum growth is achieved in the main corn producing areas by late August and harvest begins in early October. By mid-November, most of the corn has been harvested.
A variety of conveyances come into play when corn is transported from the field at harvest, to where it will ultimately be used. It goes from the farm field by truck to the country elevator, then by rail from the county elevator to the domestic user. Corn that is to be exported outside the U.S., goes from the country elevator to the river elevator by truck and then by barge to the export market.
Despite corn’s popularity on the dinner table, approximately 55-60% of the U.S. corn crop is actually used for livestock feed, 10-20% is exported, human food use accounts for 8-10%, and between 35 to 40% of the U.S. crop is used to produce ethanol.
Ethanol is considered a low-cost liquid transportation fuel. Dry millers in the U.S. account for more than 50% of the ethanol produced in the world, which is then exported to about 50 countries. Approximately one-third of the byproduct that is generated by the ethanol process becomes animal feed, most often in the form of distiller’s grains, corn gluten feed and corn gluten meal.
Although only 10-20% of the U.S. corn production is exported, the U.S. is the world’s largest corn exporter. As the global population grows and the consumer demand for meat products alongside it, this will in turn increase the demand for feed grain exports. After livestock feeders, the wet miller is the largest consumer of corn in the U.S., processing it into starches, sugars, syrups, oils, alcohol and animal feed.
At every stage of the corn production chain, from planting, growing and harvest, to processing and exporting, each market participant faces the risk of adverse price movements caused by the vagaries of the market and supply and demand. Corn futures and options provide a means to manage this risk as well as to take advantage of potential profit opportunities.
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Source: CME Group