Listed for public trade on the Chicago Mercantile Exchange (CME), CME corn futures are premier agricultural derivatives products. No matter if it’s planting, growing, or harvest season, CME corn futures provide participants a viable means of addressing market volatility.
What Are CME Corn Futures?
A corn futures contract is a legally binding agreement that defines the purchase and delivery of a specific quantity of corn on a forthcoming date in time. Available for trade on the CME Globex platform, courtesy of the Chicago Board of Trade (CBOT), these products come in two distinct types: full-sized and E-mini.
Here are the contract specifications for each CME corn product:
|Contract||Symbol||Size||Tick Value||Intraday/Overnight Margin|
|E-Mini Corn||XC||1,000 bushels||$1.25||$170/$187|
In addition to these specs, there are two important caveats to remember when trading corn futures: quality and settlement procedures. First, both the full-sized and E-mini contracts are subject to delivery. If you hold ZC or XC contracts through expiration, you will be required to purchase the contract’s outstanding quantity and assume possession.
In terms of quality, corn futures are priced according to the grading system put forth by the USDA. Here’s a quick primer on the different grades of corn:
- U.S. No. 1 yellow: The U.S. No. 1 grade features a weight of 56 pounds per bushel, with a maximum of 0.1 percent heat damaged, 3 percent total damaged, and 2 percent broken corn and 2 percent foreign material (BCFM) acceptable. Corn that is graded U.S. No. 1 yellow is delivered at a 1.5 cent/bushel premium over the contract price.
- U.S. No. 2 yellow: For U.S. No. 2 yellow, a weight of 54 pounds per bushel is required, with 0.2 percent heat damaged, 5 percent total damaged, and 3 percent BCFM being acceptable. U.S. No. 2 yellow is delivered at the contract price.
- U.S. No. 3 yellow: U.S No. 3 yellow must meet a minimum weight of 52 pounds per bushel, with a maximum of 0.5 percent heat damaged, 7 percent total damaged, and 4 percent BCFM. U.S. No. 3 yellow is discounted at delivery; as of 2019, No. 3 yellow was offered at a discount of 2-4 cents per bushel.
Trading CME Corn
One of the key benefits of CME corn contracts is that they are standardized. Buyers and sellers are furnished with a constant size and quality, as well as minimal counterparty risk. When it comes to managing corn market exposure, these products offer optimal flexibility.
As with all other markets, there are two basic stances to take in corn: bullish or bearish. Of course, many different factors c0me into play with either bias. Here’s a look at several of the most important ones:
- Bullish: If you are bullish ZC or XC, then you will be looking to buy or go long the market. The primary reasons for this decision include supply shortages, USD devaluation, or a spike in global demand. Key events driving a bullish bias may be a subpar planting season, inclement weather cycles, or exceedingly dovish U.S. Federal Reserve (Fed) monetary policy.
- Bearish: If you are bearish ZC or XC, then you will aspire to sell or short the market. Underpinnings of this perspective may be lagging global demand, supply gluts, or a rally in U.S. dollar (USD) valuations.
Each of these opinions can prompt speculators and hedgers to become active in the corn futures markets throughout the year. Producers can hedge against a harvest time downturn by shorting the December ZC or XC contracts well in advance. In doing so, profits from this year’s crops may be locked in and the negative impacts of a late-season price slump avoided.
For speculators, a variety of fundamental or technical indicators can help define either a bullish or bearish market outlook. As an example, during the COVID-19 market meltdown of 2020, many corn traders recognized a premium buying opportunity. When the Fed launched an aggressive program of quantitative easing in March 2020, USD valuations steadily decreased in the following six months. In response, astute corn traders bet big on robust harvest time pricing by going long December CME corn during the late spring and early summer. These traders realized profits when December ZC rallied from June lows around 320’0 to October highs north of 420’0.
Interested in Trading Corn? Contact a Daniels Trading Ag Pro
If you’re interested in the potential of corn futures, talking to an industry expert is a great first step. To learn more about the ins and outs of these exciting markets, schedule your free consultation with a Daniels Trading ag pro today.