What Market Fundamentals Can Affect The Corn Futures?
In 2006 the United States produced 42% of the world’s corn. The United States is not only the world's top corn producer, but also the top exporter. Therefore when following corn prices it is important to follow the US corn crop.
The corn market follows a fixed cycle of production. The corn cycle goes from planting, to pollination, to harvest. During these key stages of the crop's development the corn futures prices are very sensitive to any potential supply disruption.
1. Corn Planting The relative price of corn to other crops, and crop rotation needs influence planting acreage allocation. Corn planting in the United States typically begins in late March and is completed by mid to late May. During March and April in the early stages of the planting effort corn futures prices have tended to increase.
During the planting phase it is important to watch precipitation levels. Too much rain could result in a late planting. That could mean a loss of acreage or late development which could result in a lower quality crop or lower yields. Too little rain could prevent seeds from germinating properly, which can result in lower production levels.
2. Corn Pollination The Corn crop typically pollinates in late June, and early July. During the month of June corn futures have tended to increase. However, since even a poor pollination ensures some future corn production the market doesn’t tend to increase as much during pollination as it does doing planting.
During the pollination phase it is important to watch temperature and precipitation levels. High temperatures and a lack of precipitation can result in poor pollination and lower pollination. Low temperatures and excessive precipitation can also affect pollination which could result in a production loss.
3. Corn Harvest Corn is typically harvested in October and November. Corn futures prices have tended to decrease during harvest. However, harvest delays, or at least the fear of such, can cause futures prices to increase.
During the later stages of maturation and/or harvest, excessive heat can cause crop damage. Prolonged exposure to moisture can reduce quality, allow mold-based diseases to spread, as well as delay the harvesting effort due to the ground being to muddy for fieldwork. Early frosts can damage crops as well.
4. Corn Diseases Corn diseases can cause harvest losses, affect the quality of the harvested crop, and cause storage losses. Corn diseases can increase production costs and have negative effects on marketing and cropping decisions. Problems with germination and stand establishment that are related to seed decay, damping-off, and seedling blights are often encountered in the field. These losses can be costly, especially if replanting is necessary. Diseases may cause leaf spots or leaf blights, wilts or premature death of plants.
5. USDA Crop Reports The USDA publishes several key crop reports that are helpful in your research and trading of corn futures and options. The first main report comes out at the beginning of the corn growing season. It is the USDA Prospective Plantings Report. It is released around the end of March. It summarizes how much and which crops the farmers expect to plant for the upcoming season. The USDA Monthly Crop Production Report is released around the 10th of each month. The report gives an updated estimate of supply and demand for corn. The USDA Grain Stocks Report provides information on the current supply of corn and other grains in the U.S. and the world.
These are just some of the basic fundamentals to keep in mind when you are considering a trade in the corn market. Before opening up a commodity account to trade corn you should consult with a licensed commodity broker that follows the corn market to discuss investment strategies.