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Following the "trade what you know" admonition, and being an avid fan of barbecue, I have noticed a steady increase in the price of corn on the cob in my local supermarket.
In addition, my non-scientific research in the produce section seems to indicate the quality and inventory levels are decreasing. These observations led me to look into corn as a trading vehicle. I was pleasantly surprised at what I found. This article will provide basic information on how to get started trading this popular commodity.
Corn is the US leading crop in terms of production and quantity grown. It's primarily grown in the Midwest and over 50% of it is used as feed sources for livestock, and around 19% is exported. The remaining uses are Ethanol, food, alcohol, cereal, starch and seed. It's traded on the CBOT in both electronic and open outcry formats.
We will focus on the E-mini corn contract. Here are the simple facts: its symbol is XC for electronic and YC for open outcry. The trading hours are Open Auction 9:30am to 1:45pm Chicago time, Monday through Friday and Electronic 6:30pm to 6:00am Chicago time Sunday through Friday. The trading unit is 1000 bushels of one grade and minimum price move is 1/8th of a cent per contract or $1.25 per tick/contract. Due to the extreme recent volatility, margins are going to be increased by 25% in corn futures. The E-mini margins are presently $270.00 per contract at the exchange.
A Monster Trend?
Corn has been in a major up trend since August 2007. As you can see from the weekly chart, corn has been a trend follower's dream commodity over the last 10 months.
Recently, the Midwest has been battered by torrential rains, raising fears of decreased production and damaged crops. Corn just hit an all-time high on Monday and prices have increased by over 10% in the last 10 days.
Jim Stephens, who helps manage 3600 farms in the Midwest stated, "The crop is in serious trouble, and will top $8.00/bushel this year" per Bloomberg. It appears that a perfect storm has hit corn and the up trend will continue.
I believe all future traders should seriously consider adding corn to their trading arsenal.
Good Luck!
Dave Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.
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