Corn Futures

 

 

Corn futures are a type of commodity futures contracts, in which corn is the underlying asset. Futures on corn are one of the most liquid types of grain futures contracts.

Corn’s demand in the futures market has increased further due to its role in the production of ethanol which works as a substitute for petroleum. Corn has many more different uses which makes it a popular commodity. Some of the products which requirecorn as one of its elements are aspirin, antibiotics, laminated building products, metal plating, construction materials and adhesives.

Due to its high value and popularity, corn is widely known as yellow gold. It is also ranked among the most popular commodity assets that are used by the futures contracts traders.

Corn futures started trading in Chicago at about the same time that cotton began trading in New York, in the mid 1800’s. Originally, the corn futures were for 3000 bushels but now it is traded for 5000 bushels. The Chicago Board of Trade is the primary corn futures trading exchange in the world today.

How are Corn Futures Traded?

Corn futures are traded in two formats, namely, electronic and open outcry formats. Trading in corn futures is differentfrom trading in corn stocks. Unlike trading in stocks, it is not necessary to actually possess the stocks in the futurescontracts. It is not even required to have actual possession of the commodity, namely corn. The trade is reduced to merespeculation of the corn’s future price. The futures trading of corn is done in an organized futures market. The role ofthese futures exchanges is to standardize the corn futures contracts and facilitate transactions between the buyers andsellers.

Benefits of Corn Futures

• Corn futures contracts continue to be popular due to their relative leverage and liquidity.
• Corn futures are used by the hedgers as well as the farmers to minimize the risk of fluctuating prices of crops. This happens due to unforeseen future conditions.

Risks of Corn Futures

Due to small margins of corn futures, a small price fluctuation can result in huge losses. Taking risks and giving in to thetemptation of making huge profits are high in corn futures trading. Those who plan to make huge profits are well advised to keep these risks in mind before taking impulsive risks.