How to Spread Bet Corn
As one of the staples for modern life, you might be interested in spread betting corn. Corn is grown all over the world, but the US is one of the major production countries, with the majority of corn being grown in the “corn belt” of the Midwest. Despite what you might believe, there is no set amount of corn planted each year, as farmers will try to plant what they see as the most lucrative crop. This led to massive over planting of corn a couple of years ago, when the pressure was on to grow corn for ethanol production, and consequently the price fell flat in the following year.
It costs more to plant corn compared to other grains, and fertilizer, fuel, etc. add to the expense of raising corn. Having said that, if the growing season is as expected corn will generally produce the highest return per acre. This is the balance that farmers must make when deciding on their crops.
You don’t directly eat GM corn…it’s mostly made for cooking oils and biofuels. It’s also used for corn syrup and high fructose corn syrup, which are in many of the things we eat.
In the US, corn is planted in April and May, and pollination takes place in July, so these are critical months for determining where corn production stands. In common with all other agricultural products, the climate can play havoc with plans, and if the summer is too hot corn is particularly susceptible to crop losses.
Historically, most corn has been used as food, particularly for feeding cattle, pigs, and poultry, as well as for human consumption. Nowadays corn is increasingly used for industrial purposes, such as ethanol production, which takes about a third of the US crop. Because of the seasonal factors in growing, you can expect corn prices to reduce just before the harvest in autumn, then to increase as distributors demand stock for their deliveries. The price usually goes down again just after January as interest wanes. In terms of volatility, summer can see a number of rallies and setbacks depending on actual and rumoured weather events.
If you want to look into the factors behind the demand for corn, then it can be a good idea to check out the numbers of animals such as cattle that are being raised each year, and that will typically be fed with the crop. The other major factor has been mentioned above – despite the potential clash between corn for foods and energy requirements, corn is still the major crop grown for ethanol production. The effect of this is not necessarily clear, because if petrol goes up in cost you might assume that ethanol is more worthwhile, but there is a counter effect that people drive less.
Looking again at fundamentals, the US Department of Agriculture releases regular reports related to corn supply and corn usage. In January they issue the annual crop summary for the previous year, and this includes remaining stocks at the end of the year. In March they report how much corn is expected to be planted, and in June this is confirmed or revised by actual planting figures. They also issue weekly progress statements during the growing season that report on the condition of corn.
As one of the major commodities, there are no liquidity problems with trading corn, and as long as you keep an eye on the agricultural reports to warn you in advance of price pressures, you have a good chance of profit spread trading corn. At the time of writing (November 2014) there is a global glut of corn and wheat in markets which is negative for the commodities in the short term. The main reason for this global glut of grain were high prices which has boosted investments in agriculture and encouraged farmers to increase production as much as possible.
Corn Spread Betting
There is no shortage of information to be found about trading corn, and as with all agricultural commodities, it is worth keeping in touch with weather forecasts as well as other issues. The current price quote is 592.3 – 593.3 for a future style spread bet. This price is in US cents per bushel, with the standard futures contract being 5000 bushels.
If you think that corn will increase in value, then you may choose to place a buy bet at 593.3 for £3 per point. Assume you made a winning bet, and the price goes up to 646.2 – 647.2, when you close your bet. It is easy to figure out how much you will have won, and you do it like this: –
- your bet was opened at 593.3
- the bet closed at 646.2
- the number of points you gained is the difference between these two
- which works out to 52.9
- your stake was £3 per point
- so you won 52.9 x £3
- your total winnings are £158.70
Sometimes your bet will not be successful, and the price will go in the opposite direction to the one you expected. When this happens, you have to have the discipline to cut your losses quickly and close the bet. Say the price dropped to 571.1 – 572.1, and you closed your bet to limit your loss. Here’s how to work out what you lost: –
- your bet was opened at 593.3
- the bet closed at 571.1
- the number of points you lost is the difference between these two
- and that is 22.2 points
- with a stake of £3 per point
- the total you lost is £66.60
As another example, suppose corn that was listed at 621.3 – 622.3, and you wanted to bet that it was going down, a sell or short bet. This time the bet would go on at the lower price of 621.3, and you might stake £6 per point.
Assume the price did go down, to 568.7 – 569.7, and you decided to close the bet while you are winning. The bet would close at the higher price of 569.7. That means the number of points you have gained is 621.3 less 569.7, which is 51.6. As you staked £6 per point on this bet, you simply multiply it out to see that you won £309.60.
Once again, you cannot expect to be successful with every bet, so if instead of falling the price rose you might decide to close the bet for a loss when it reached 642.6 – 643.6. Once again, a short bet closes on the higher (buying) price, in this case 643.6.
The number of points you lost is 643.6 less 621.3, which is 22.3 points. The amount of your bet was £6 per point, so you simply multiply this out to see how much you lost. 22.3 times £6 comes out to £133.80.
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