The Impact of Grain Reports on the Commodity Futures Market

Gabe Velazquez

In the commodities sector of the futures market the one that stands out for me are the grains.  These particular markets are great because they tend to have big trending moves. In addition, for those commodity futures traders that want a diverse, non-correlated set of markets, grains fit the bill quite nicely. When we refer to a “non-correlated” market we simply mean that the grain market will trade independently to, say, the stock index futures or the interest rate market.  This gives a trader diverse opportunities throughout any given trading day.

Free Trading WorkshopThe three main products in this sector are Corn, Wheat and Soybeans.  As is the case with the various sectors in the futures arena, each of these has its own characteristics and levels of volatility. Soybeans are the most volatile followed by wheat and then corn.  So, corn would be the one I would recommend for the newer trader because of its slower movement.

When looking to trade the grain markets there are several caveats that a trader must be aware of. First, the trading hours for the grain markets are somewhat fragmented. What this means is that unlike many of the other futures markets that trade continuously throughout the week, the grains have many stoppage times. For instance, they have a big window between 2:15 and 8:00 pm EST when they are closed. This is important information for traders because if positions are left open during this time it exposes them to the risk of a gap opening.   The other item, and the most important, is the grain reports that are released by the US department of Agriculture.  During harvest season, in the fall months these are released once a week. This can have a huge impact on the price of grains.  Just last week we had one these reports and the move was quite dramatic.

We can see in the chart below the impact these reports can have.

Commodity Futures Grain Report Aftermath

So the obvious question is: can a commodity futures trader profit from the moves caused by the release of these reports. The answer is yes and no, depending on the trader’s skill level.  For most traders, the best course of action is to stay on the sidelines before the release of these reports. In order to know when to do that, a trader has to review the USDA Agency reports calendar. This should be incorporated into a daily or weekly routine to determine when these reports will be released.

For the more skilled traders, these reports produce opportunities as the spike that follows the news release usually drives price into quality supply or demand levels. This was the case with Soybeans in last week’s report shown in the chart below.

Commodity Futures Chart

All in all, the grain markets add another source of opportunities for the skilled futures trader. Notice I said “skilled.”  This is important because an unskilled trader could have plenty of risk in these markets, or any futures markets for that matter.  So, before you trade any market make sure you get to know what you’re doing. That’s done by learning a low risk, high probability, proven strategy. To explore the possibilities of learning such a strategy contact your local Online Trading Academy center.

Until next time, trade safe.

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.