Migrated – Original Post Date: Jun 14, 2018
Interest in corn derivatives has been proliferating. Last Friday, the Chicago Board Of Trade (CBOT) announced that open interest in corn futures reached an all-time high of 2,006,600 contracts surpassing a previous record achieved on June 4th.
Adding to this excitement, on June 11th, the China Securities Regulatory Commission (CSRC) approved corn and cotton option contracts, creating more trading opportunities in an already growing derivatives industry in China. The new corn options at DCE will add international pricing and benchmarking power as arbitrageurs and institutional participants continue to add liquidity into Chinese markets via expanded agricultural options and the long-awaited new INE Crude Oil contract. While the corn option contracts have gained approval by China’s regulatory body (“CSRC”), the launch date is still unannounced with the listing exchange, the Dalian Commodity Exchange (DCE).
Volume
For May, the DCE reported that corn futures traded 9,138,082 contracts, down 54% year over year, compared to CBOT’s 8,164,275 contracts, up 32.4% year over year, with US-based CBOT currently the volume leader in corn futures. The DCE contract is significantly smaller than the one at CME Group, less than 1/10th of the contract size. With China continuing to open its financial markets and create diplomacy abroad for the benefit of its country, many believe that as time progresses, more arbitrage opportunities will be available for investors and hedgers.
Underlying pricing
Currently, corn is in its growth stage, and some agricultural specialists are worried about the sudden and consistent rise in temperatures across the Midwest, most notably Illinois. Some farmers are concerned that if the crops do not get several additional rainfalls, corn yields could be impacted. For these farmers, over the course of the next few weeks, the amount of precipitation is critical. Unfortunately, certain weather systems at the time of this writing suggest high temperatures and humidity with a low likelihood of rain during the next two weeks.
Additionally, hail storms last week negatively impacted some farming counties in Iowa but favored other market participants because with the hail came the precipitation much needed by the Corn Belt. Corn futures pricing moved higher at the start of the week, and last week, Commerzbank predicted that US corn futures will rise 6% by the end of 2018. The USDA crop report was published at the start of the week and showed 77% of crop conditions rated good-to-excellent which is down slightly from the previous week’s rating of 78%; however, the current ratings are still 10% higher than last year’s crop at the same time.
Trading Corn Futures
Straits Financial provides access to both the Chicago Mercantile Exchange and the Dalian Commodity Exchange, and clients at Straits can trade corn futures around the clock. As one of the leading FCMs in the agricultural space, our experience in the ag market provides clients with superior access and expertise. Whether trading corn, soybeans, energy or equity derivatives, clients who trade through Straits can trade derivatives twenty-four hours a day with the touch of a button.
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