Corn futures are a great way for you to diversify your portfolio and increase your profit potential. As with any type of investment, there are risks associated with corn futures, but there are also opportunities to make money. We’ll go over some of the basic details in this article.
Corn Futures Illustration
So what are futures anyways? Futures are basically contracts in which a buyer and a seller agree upon a price and exchange money in the present, but the seller doesn’t deliver the goods until a predetermined point in the future. Confused? Let’s look at an example of a corn future to see how this works and why buyers and sellers make such arrangements.
Let’s say a farmer is growing corn right now, and he needs some money in order to buy new farm equipment. He could take out a loan from a bank, or something similar. Or he could approach companies that need corn and offer to sell some of his yet to be grown corn.
Let’s say the farmer is looking to sell his future corn. At the same time a big food processor that depends upon steady supplies of corn to produce its processed foods is willing to pay for corn now, so long as the seller guarantees delivery in the future. The farmer and food processor determine prices in the present and exchange money.
The food processor would be willing to pay for corn now, with the delivery date set in the future because this would ensure a steady supply of corn, which is vital to the processor’s business. Meanwhile, the farmer would be willing to sell his corn now, even though corn prices could rise in the future, so he can fund his current operations. These needs help lay the foundation for futures.
Earning Opportunities From Futures and Price Swings
These types of agreements also create opportunities for investors to make money off of swings in corn prices. Let’s say you go to a farmer and you buy 1,000 bushels of corn for $3.00 dollars, with the corn due to be delivered in six months. This would amount to $3,000 dollars in corn.
Over the next six months, demand for corn suddenly skyrockets. Perhaps scientists found a new way to convert corn to ethanol more efficiently. Perhaps a disease wiped out corn crops in Europe. Different things can happen. Suddenly, corn prices jump to $5 dollars a bushel. Now those 1,000 bushels of corn are worth $5,000 and you’re able to sell your corn for a profit of $2,000.
This is how you can make money off of the movement of corn futures prices. Besides corn, you can make money off of essentially any commodity that is traded through the futures markets, and there are tons of options. Oil, wheat, rice, gold, just about every commodity is traded via futures. So make sure you keep your eyes open for opportunities.
If you want to check out the price for corn futures, check out the cme corn futures website. On this website you can find a list of estimates for current corn prices. These prices might not be one hundred percent accurate owing to local market conditions and developments, but they are generally quite accurate. Make sure you check out a corn futures chart too so you can see how prices have evolved over time.
What Impacts Corn Prices
So what impacts corn prices? Given how developed the global industry is, why do corn prices fluctuate at all? After all, shouldn’t suppliers have a good idea of how much demand there is for corn across the world? This should regulate supply, which in turn should result in stable prices.
The corn market is quite developed, and more stable than some other commodities. Regardless, changes in government policies, weather patterns, diseases, and other things can affect global supplies of corn. For example, many governments support their agricultural sectors with subsidies. These subsidies can encourage or discourage farmers from growing more corn.
A change in the weather could cause a drought, and this drought could kill off a large portion of the corn being grown in any country or region. Or a disease could do the same. All of these events could affect corn prices, so make sure you keep an eye on corn futures news.
What is the CBOT?
Have you ever heard of the term cbot? This refers to the Chicago Board of Trade, which is one of the world’s largest and most important futures and commodities markets. The CBOT is a very popular corn market. If you’re looking to buy corn, cbot corn is often one of the easiest and most widely traded corn futures available.
There are other global markets where you can buy a corn future. Prices can vary a bit from market to market. Corn is a very widely traded commodity, both in its physical form and as a future. So if you want to trade a future, corn is definitely worth a look.