In the past, agricultural products were not very popular with investors. However, this does not mean that trading them is a bad idea and cannot generate large profits. A great example would be the maize market, which offers a lot of volatility and an encouraging prospect. Find out how to invest in corn .
Of course, it is not practically feasible to physically buy corn for investment purposes, as is the case with gold. Its price in relation to the volume simply turns out to be too cheap, which makes it difficult to store it. Various types of financial instruments come with help here, thanks to which you can earn money by speculating on their price on this market. Let’s start by presenting some basic information about this grain.
Corn – the most important information
Corn is considered the most versatile and complex grain in the world. It is a staple food commodity on Earth with a variety of uses, ranging from food and animal feed to biogas and energy production.
It was cultivated in Mexico at least 4.5 thousand years before our era. After the discovery of America, it was brought to Europe and Asia. Over a billion tonnes of this plant are produced annually. Most in the United States – about 400 million. China and Brazil are followed.
Its price is stated in US dollars for a bushel , which is exactly 27,216 kilograms. And on which exchanges can this grain be traded?
How to invest in maize – maize exchanges
The most famous and oldest commodity exchange is the Chicago Board of Trade (CBOT) , where you can buy contracts for agricultural products such as corn. Other most popular venues for trading this commodity are the Chicago Mercantile Exchange (CME) and the Brazilian Mercantile and Futures Exchange (BM&F) . Now let’s move on to the past performance of this grain.
Corn rate over the years
The first significant increase in maize prices took place in 1971-1974. Then, from around $ 1.20 a bushel, the rate soared to $ 3.94 in October 1974. Then, it went down until August 1977. Then the bushel of corn cost $ 1.86. This resulted in the generation of an upward movement that reached a new historic high, this time in November 1980 at $ 4.06.
In the following years, the price moved in a fairly wide consolidation zone, limited by the values of 1.50 and 3.50 USD. It lasted until December 1995, when the rate finally managed to break the resistance and stay above it, which generated a strong upward impulse. As a result, in May 1996, the price reached a new all-time high of $ 5.05 a bushel. This resulted, of course, in a several-year bear market, which lasted until August 2000, when the minimum value of the exchange rate was USD 1.77.
Then the maize market swung back into the consolidation period with the rate hitting between $ 1.80 and $ 3.30. This state of affairs lasted until November 2006, when the upper limit broke again and an attack on a new historic peak took place. The boom ended in June 2008 when the price was as high as $ 7.78. This resulted in a sharp drop, the minimum was reached in September 2009 at $ 3.02.
Then the last upward trend in the maize market took place , as a result, it reached its all-time high, the price for a bushel of this corn was $ 8.39, in August 2012 . It was followed by the Bessa, which lasted until August 2016 when the minimum price was $ 3.15. Currently, the rate is once again in the consolidation zone, which is limited by the levels of $ 3.20 and $ 4.60, at the moment the cost of a bushel of corn hovers around $ 3.30.
How to invest in corn?
There are several ways to invest in maize. Let us discuss them briefly.
Investment corn – futures
First, a short explanation – futures contracts are a bilateral agreement to buy / sell a specific underlying asset, in this case corn, for a strictly defined price on a given date. They are standardized instruments, and they are traded on individual exchanges, which also means predetermined underlying instruments, execution dates and contract sizes.
As for the second and third points, in the case of the cereals described above, they expire monthly and are contained in 5,000 bushels, so a large capital is required. This is because they are traded on a centralized, open market and the broker or brokerage house is only an intermediary.
Of course, we don’t have to hold the contract until it expires. We can sell it at the current market price if there is sufficient liquidity in the market. In the event that there is no investor willing to buy it back, the position is closed at expiry at a predetermined price.
The futures market is intended for experienced investors and is speculative in nature. Additionally, it has a leverage of 1:10.
Options are the second way to invest in corn. They are an instrument giving their buyer the right to perform a specific operation. Their characteristic feature is that they can use it, but they do not have to, while the other party to the transaction, i.e. its writer, is already obliged to fulfill the option. The conditions are determined by the exchange and in the case of maize they are identical to futures contracts, i.e. they expire after a month and are concluded for 5000 bushels and their strike price is strictly defined.
There are two types of options – buy and sell. It should also be added that they also allow the use of financial leverage. So far this market is very similar to the futures market, what’s the difference? In the case of options, we additionally pay an option premium, which is basically the cost of purchasing this instrument.
However, as mentioned earlier, there is no obligation to do so. So, if the price of corn goes the other way than expected, we don’t need to activate this security until it expires, and we only bear the cost of the premium. Of course, they can be made at any time before that date. So the risk of loss in this case is known at the beginning of the trade and the potential profit is practically unlimited.
CFD – easy access to corn exposure
CFDs are the last way in this text to find out how to invest in corn. They are the easiest to use and possibly the most popular way to invest in commodities. Their name comes from the English language and is an abbreviation of Contracts for Difference, i.e. contracts for differences.
The CFD market is over-the-counter, which means that the transaction is between an investor and a broker and not in the real market. The CFD follows the movement of the underlying asset, which in this case is corn. After opening a buy position, when the price of the underlying instrument goes up, we make money on its rise, and the selling side loses, and vice versa. We do not acquire the asset physically, we only speculate about a change in its price in the future.
As in the case of futures, we can place long and short orders on the CFD market, and the financial leverage on corn in Poland is 1:10.
However, their advantage is the other two issues, i.e. the expiry date and the size of the contract. The time limit does not apply, so you can close your position at any time as long as the market is open. This is lightning fast as the broker undertakes to pay the exchange rate difference in any situation after placing the order. What’s more, in this case, we can adjust the size of the contract ourselves to the capital and risk management strategy , they are not standardized, so you do not need large funds to start investing on them.
Additionally, virtually every broker offers corn CFDs, so there are no problems with their availability. So it is probably the easiest, fastest and cheapest form of speculation on grains in terms of commissions and spreads.
Why Trade Corn Online?
Investing in maize, due to the volatility and the variety of instruments offering speculation in this market, can be a great idea that has a chance to generate a satisfactory rate of return.
However, the best solution in this case is to trade in the long term, and this method is easiest available on the CFD market. Moreover, they have the lowest fees of all three instruments, the fastest execution, reliable market liquidity, and do not require a large deposit to trade.
If you are wondering how to invest in corn, CFDs are definitely a good way to invest in corn. Especially beginners should focus on them.