Keys to Trading Corn Futures
Trading corn futures can be fairly subdued during the winter months, while the summer months are not for the faint of heart.
Corn is planted in the spring and harvested in the fall. This growing season is when most of the action in corn prices take place. The winter months usually deal with demand and how much of the harvested crop is sold on a weekly basis. The summer months often have a barrage of weather problems that can keep corn traders on edge with every updated weather report.
The first report to monitor in the spring is the Planting Intentions report from the USDA. This report is released at the end of March. This report sets the tone for the market for the season. It tells us the amount of acreage that farmers intend on planting for each crop. The less acres that are planted, the less chance for a larger crop. Most analysts will take the amount of acres and multiply it by a trend yield to get the expected size of the crop for the season.
Demand is the next part of the equation when trying to figure a valuation for corn. About 40 percent of the corn crop goes to ethanol production. Most of the remainder goes to feed for livestock. Surprisingly, only a small portion goes to actual human consumption. Therefore, it is important to monitor the price of crude oil, which determines the demand for ethanol. A cheap corn price and a high price of crude oil often leads to increased demand for ethanol.
The USDA releases an export report every Thursday, which details the demand for corn exports.
A strong export market is often favorable for corn prices to move higher. It is also advisable to monitor the price of corn from other exporting countries. If the price of U.S. corn is much higher than other competing countries, then the chances of a strong export market will diminish.
The summer months is when trading corn futures takes on another dimension. The high price for corn is often set between late June and August for corn. This is mostly due to weather scares that happen during the summer. Extreme heat and droughts in the Midwest is the biggest fear for farmers and corn traders.
Mid to late July is when corn goes through its critical pollination phase. Corn needs moisture and moderate temperatures to ensure a healthy and high yielding crop at this phase. Extreme heat near 100 degrees and dry soil will damage the crops and lead to lower yields. This will obviously cause the price of corn to rise.
The main states to watch for weather reports are Iowa, Nebraska, Illinois, Indiana and Ohio. These are the largest corn producing states. There are often pockets that affect smaller regions, but once in a while there will be a widespread drought and heat wave. These are the conditions that can cause the price of corn to skyrocket.
Most of the instances are just weather scares where little material damage is done to the overall crop. The market often rallies, nonetheless, out of fear it could turn into a bigger problem. More often than not, it is a good idea to look for selling opportunities during the summer months. Corn has a seasonal tendency to peak in price during late June or early July.
The corn market can also make a high in price during the summer months even if there are extreme weather problems. The explanation for this is that the market goes into panic mode and corn prices run too high. At some point, demand will fall substantially when prices rise to an extreme. It is actually the markets job to find a price that will stifle demand in order to ration supplies. This process often happens quicker than you would expect. It is often difficult to sell corn when you see droughts wreaking devastation with every passing day, but there will be a high in prices somewhere in there.
By contrast, corn prices often make their lows around harvest time. This usually falls around November. This is when the largest supplies are online after harvest and many corn farmers are selling their cash crops. Corn prices tend to have less volatility during the winter months, while exports and demand are the main thing to watch for corn.
Corn is planted in the spring and harvested in the fall. This growing season is when most of the action in corn prices take place. The winter months usually deal with demand and how much of the harvested crop is sold on a weekly basis. The summer months often have a barrage of weather problems that can keep corn traders on edge with every updated weather report.
The first report to monitor in the spring is the Planting Intentions report from the USDA. This report is released at the end of March. This report sets the tone for the market for the season. It tells us the amount of acreage that farmers intend on planting for each crop. The less acres that are planted, the less chance for a larger crop. Most analysts will take the amount of acres and multiply it by a trend yield to get the expected size of the crop for the season.
Demand is the next part of the equation when trying to figure a valuation for corn. About 40 percent of the corn crop goes to ethanol production. Most of the remainder goes to feed for livestock. Surprisingly, only a small portion goes to actual human consumption. Therefore, it is important to monitor the price of crude oil, which determines the demand for ethanol. A cheap corn price and a high price of crude oil often leads to increased demand for ethanol.
The USDA releases an export report every Thursday, which details the demand for corn exports.
A strong export market is often favorable for corn prices to move higher. It is also advisable to monitor the price of corn from other exporting countries. If the price of U.S. corn is much higher than other competing countries, then the chances of a strong export market will diminish.
The summer months is when trading corn futures takes on another dimension. The high price for corn is often set between late June and August for corn. This is mostly due to weather scares that happen during the summer. Extreme heat and droughts in the Midwest is the biggest fear for farmers and corn traders.
Mid to late July is when corn goes through its critical pollination phase. Corn needs moisture and moderate temperatures to ensure a healthy and high yielding crop at this phase. Extreme heat near 100 degrees and dry soil will damage the crops and lead to lower yields. This will obviously cause the price of corn to rise.
The main states to watch for weather reports are Iowa, Nebraska, Illinois, Indiana and Ohio. These are the largest corn producing states. There are often pockets that affect smaller regions, but once in a while there will be a widespread drought and heat wave. These are the conditions that can cause the price of corn to skyrocket.
Most of the instances are just weather scares where little material damage is done to the overall crop. The market often rallies, nonetheless, out of fear it could turn into a bigger problem. More often than not, it is a good idea to look for selling opportunities during the summer months. Corn has a seasonal tendency to peak in price during late June or early July.
The corn market can also make a high in price during the summer months even if there are extreme weather problems. The explanation for this is that the market goes into panic mode and corn prices run too high. At some point, demand will fall substantially when prices rise to an extreme. It is actually the markets job to find a price that will stifle demand in order to ration supplies. This process often happens quicker than you would expect. It is often difficult to sell corn when you see droughts wreaking devastation with every passing day, but there will be a high in prices somewhere in there.
By contrast, corn prices often make their lows around harvest time. This usually falls around November. This is when the largest supplies are online after harvest and many corn farmers are selling their cash crops. Corn prices tend to have less volatility during the winter months, while exports and demand are the main thing to watch for corn.
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