In an article on Friday discussed the poor state of the ethanol industry. We also touched on how the industry is colliding rising grain prices. Corn, it seems, is becoming little celebrity. Everyone’s been watching prices move to new highs. And everyone is riding grain bandwagon.
Farmers celebrate the high price. Speculators and traders are jumping into the market looking for quick money. Environmentalists are still trying to determine if ethanol from corn is a “good” or “bad”. Officials are even getting in on the debate, as they get to complain about food inflation.
Now, you do not need me to tell you how important corn is. It is one of the most important food in the United States and a significant part of the world. Corn is the largest crop in the United States. We produce about 170 million tons annually – almost half of global output.
Corn was first domesticated about 9,000 years ago in central Mexico. Its use spread across America, and continued to Europe in the 16th century. The grain we usually think of – the kind we eat BBQs and picnics – is known as sweet corn. Popping corn is another genetic diversity.
Amazingly, I grain you eat is just a tiny part of the total crop. The vast majority of grain production of dent and flint variety. Dent and flint corn is used either as animal feed or industrial products.
According to the US Department of Agriculture, almost 70% of the corn is used as animal feed. Corn can also work in other useful products like corn starch, corn syrup and ethanol.
corn crop is jealous.
Planting conditions have to be just right. As a matter of fact, right now the market speculators are spending more time watching the weather channel and CNBC. This year the rains are delaying planting schedules. The longer it takes to get seeds in the ground in a smaller crop will be
Making money on grain -.? Futures or option
Corn traded primarily on the Chicago Board of Trade as investors, speculators, and industry participants can buy and sell in the future. For those who do not know, it’s a big difference between futures and options.
Both futures and options allow you to use leverage. And both are big profits. With the option you have the right but not the obligation to complete the transaction. This means that if you bought an option on balance it’s your decision to complete the transaction.
A future is different. If you have a future on the settlement you are obliged to settle the transaction. If you have a Corn futures, you might find yourself the proud owner of 5,000 bushels.
Now with all the business it is important to know what you are buying. One deal of grain represents 5,000 bushels. Just so you have an idea, each bushel is 56 £ (husks and cobs are removed). Corn trading quarter of the current year is $ 12.50 per contract. So penny move in grain prices brings the contract value up or down $ 50
Some investors do not know this, but the limits how much grain prices can move. This market levels prevent prices getting out of hand when important news or events occur. For grain maximum move is 20 cents. So when prices by $ 0.20 a day, all business stops. If you want to trade you have to wait for the next day.
Futures trading can be complex.
if you still want to invest in corn, but don ‘t want to use options or futures, there is an easier way. Various agricultural ETFs have been created. They monitor the movements of various commodities. One is Power Shares DB Agriculture Fund (DBA). This fund is a basket of products including wheat, soybeans, and sugar. More than 24% of the fund is invested in Corn. So if you are looking for a safer way to invest in corn, this ETF could be a good choice.