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Corn Futures


What are Corn Futures?

A Corn Future is a standardized contract traded an exchange between two parties that allow for the purchase and delivery of a standardized quantity and quality of corn for a price agreed upon today at a agreed upon contract price with delivery and payment occurring at a specified future date.

Brief History of Corn

Corn (maize) is large grain plant that produces ears of grain seed called kernels which are used in several different ways including as a staple food, livestock feed, and bio-fuel.  

Corn was originally domesticated in the Americas (Tehuacan Valley of Mexico) by indigenous peoples in prehistoric time. Corn was carried back to Europe and introduced to other countries after European contact in the Americas during the 15th-16th centuries.

Today, corn is regarded as the most important crop in terms of production and acreage growth. According to the U.S. Department of Agriculture (USDA), the U.S. is the leading exporter of corn, currently accounting for 20% of the world’s corn, and the major producer of corn, accounting for 39% of the world’s corn production in 2010. Most of the crop us used for livestock feed, accounting for over 90% of feed grain use and production.

Where is Corn Grown?

Global production (figures as of 2012) of corn is approximately 700 million tonnes per annum with the United States leading the world in corn production at ~275M tonnes per year and is the most widely grown grain crop in the Americas.

Other top producers include: China (208.3M), Brazil (71.3M), Argentina (25.7M), Mexico (22.1M), India (21.1M), Ukraine (20.9M), Indonesia (19.3M), France (15.6M) and South Africa (12.5M).

In the United States, Iowa is the largest producer of corn followed by Minnesota, Nebraska and Illinois.

How is Corn Used (United States)?

During processing, corn may either be wet or dry milled depending on the desired use. Wet millers process corn into syrup, oil, starch, glucose and dextrose, beverage alcohol, industrial alcohol and fuel ethanol. Dry millers process corn into cereal, flour, corn grits, corn meal, and brewers grits for beer production. 

In the U.S., the largest usage of corn crops is for livestock feed, which consumes roughly 43% of the 275M tonnes per year. The second largest user of corn is ethanol producers which use up approximately 30% of crop production.

Complete corn usage breakdown:

Livestock Feed - 43.7%
Ethanol Production - 30.4%
Exports - 15.4%
Production of Starch, Corn Oil, Sweeteners (HFCS, etc.) - 7.8%
Human Consumption - 2.7%

Corn FuturesWho Invests and Trades Corn Futures?

Corn traders can be broken down into two main categories: hedgers and speculators.

Hedgers of corn include consumers and producers of corn ranging from corn farmers to ethanol producers and food producers who want to reduce the risk of future price movements in the corn market, which can impact their future operation. Hedgers have a vested interest in the underlying asset and its delivery (will either deliver it or take delivery) and use futures contracts to hedge out price risk.

Corn speculators on the other hand don’t have a vested interest in corn (won’t deliver or take delivery of corn) and trade in and out of corn futures contracts based on speculations about the price fluctuation of corn over the period of the trade. Corn speculators expecting the price to rise will go long corn futures (which will rise in value as the underlying corn prices rise) while speculators expecting a price drop in corn will go short corn futures

Corn Futures Contracts

Corn Futures are traded on the Chicago Mercantile Exchange under the symbol “C” with the standard contract representing 5,000 bushels (roughly 127 metric tons) of corn. Corn trading is done either through the open outcry method or electronically on the CME Globex electronic platform.

Price quotes for corn futures are quoted in cents per bushel - if the price of a contract is traded at 450.50 ($4.505) it represents a total value of $22,525 ($4.505 per bushel x 5,000 bushels).

Corn Futures contract months include: March (H), May (K), July (N), September (U) and December (Z).

International Corn Futures Trading

Corn Futures are also traded on international exchanges including the Euronext and Tokyo Commodity Exchange (TOCOM).

On the Euronext, corn trades under the symbol EMA with prices quoted in Euro cents per ton. The standardized contract is for 50 tonnes of fair and merchantable yellow and/or red corn. The minimum price movement is 25 Euro cents per ton (€12.50).

 

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