Futures

Grain Futures and Contract Cycle Leap Frog

dondawson
Don Dawson
Instructor

The Corn and Soybean Futures markets have an unusual event every year after the July contract expires, the trading volume leap frogs over the September contract and goes directly into the December contract for Corn and November contract for Soybeans.

The December contract for Corn and the November contract for Soybeans are known as new crop year contracts due to the end of the harvest season and grains in storage are now available for the upcoming months’ deliveries.

Grain prices tend to be more volatile (opportunities) during the growing seasons.  During these times the supply expectations can change dramatically due to acres planted, weather and growing conditions.  As the planting season arrives in the spring the southern portions of the growing belts for our crops tend to get planted first.  Then, as the snow melts and the ground thaws the northern portions are planted.  This creates a staggered planting season that typically runs from April through the end of June for Corn and Soybeans.

Free Trading WorkshopOnce planted there are different growing times required for Corn and Soybeans.  Hence the reason we have different contract months to trade for each product.  Corn typically will take 60 – 100 days from planting until ready to harvest.  Soybeans will take 45 – 100 days from planting to harvest.  What determines the number of days each year for a crop to grow is usually temperatures.  Each crop has an ideal temperature it will grow at.  Unfortunately we all know during the summer months our temperatures can be anything but ideal.  This is where the fear of supply problems comes from.

Producers of crops each year are faced with issues of getting the equipment in the fields to actually plant these crops as well.  Too much rain delays planting and may cause pooling of water on planting acres meaning the crops are not able to be planted in these areas.

On average, the Corn crop has been harvested 23% in September, 50% in October and the remainder in November.  The Soybean crop has been harvested 17% in September, 66% in October and 17% in November.  Source for monthly harvest, Moore Research (www.mrci.com).

Due to these many variables the crop is rarely if ever ready for harvest in September.  Therefore, there is very little commercial interest for the September contract for either Corn or Soybeans.  As a trader, you need to be aware we will not be trading the September contract because it will not have sufficient volume compared to the December Corn and November Soybean contracts.

Interesting Facts:

  • The United States is the primary producer of both Corn and Soybeans.
  • The US produces 39% of the world Corn production followed by China 21%, Europe 8% and then Brazil 6%.
  • The US produces 38% of the world Soybean production followed by Brazil 25%, Argentina 19% and China 7%.
  • The highest demand and consumption for Corn is the United States then China, European Union and Brazil in the top 4.
  • The highest demand and consumption for Soybeans is the United States then Brazil, China and Argentina for the top 4.

“You can’t get to a place that you don’t believe exists.”  Vaibhav Shah

Don Dawson

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.