Corn hit a record high yesterday amid a worsening drought affecting 90% of the nation's crop. I have to admit I haven't really been paying attention, because I haven't traded corn since 1999. Of course I'd seen the news about prices, but I never paid attention to the actual price per bushel. When they said it was hitting highs I just assumed they were talking about $6 or so. I was absolutely floored when I read that corn touched $8.17 a bushel yesterday.
To put this in perspective, when I was regularly trading ag products, corn was generally between $3-$3.50 a bushel. It didn't really move a whole lot, but you could make some decent money if you traded size (true of everything, I suppose). Each 5,000 bushel contract yielded $50 for every penny move in the right direction, and I remember initial margin being ridiculously low at the time (for some reason $800 sticks in my mind). So if you caught a 10-cent move in the right direction, you made $500 for every $800 you invested. Not too shabby.
Today, initial margin on corn is a more reasonable $2,025, because the delivery value of 5,000 bushels is now over $40,000. Still, that's a ton of leverage (~20x) which can mean big money if you're on the right side of the trade, or financial prison rape if you're not.
Are any of you guys actively trading the grains right now? Our old rallying cry was, "Beans in the TEENS!" back in the day, and I noticed soybeans hit $16.17 a bushel yesterday. Incredible.
This does not bode well for the grocery aisle. Now that pretty much everything America consumes (from soda pop to AAA batteries) contains high-fructose corn syrup, prices are going to rise across the board. Not to mention all the ethanol nonsense. You throw corn subsidies into the mix and you've got a recipe for consumer disaster.
It's almost a perfect storm when you think about it: the Fed inflates the shit out of the dollar at the same time Mother Nature destroys much of America's most important crop. All we need now is a rail strike.
It'll be interesting to see the impact this has on household finances. Corn is almost as important as crude oil today. Hopefully some of you are making money on this.
I'm short puts.
Just to clarify: you wrote puts? If so, what kind of premium did you collect and how far out did you go?
I bet someone from risk control is looking at this forum. I might pm you.
Rain makes corn, corn makes whiskey.
Disclosure: I am long DEO.
Eddie, I think I know your answer to this already, but does it almost make you wish you were still in the commodities game?
Corn is one of the materials that I do "Key Materials" reporting on a monthly basis. Last month when my Commodity Manager told me what the price of Corn was I thought he made a typo. We had been discussing the risk of a drought, but the corn graph made a pretty incredible V and is still rising.
Eddie, something I've been wondering for a while - do you think the average Joe could trade commodities from home? I go in with the assumption that all markets are rigged against the average Joe, but are commodities more or less rigged?
I hope this leads to the end of the ethanol mandate. Such a waste when 40-50% of our #1 crop goes to making ethanol instead of food.
I wonder if droughts like this will encourage farmers to diversify their crop selection.
some1 tell me WAT corn has to do wit invetment bankers get tis of off the site. invetment bankers dont talk about corn, only models botels
It should be a short term impact on the market, as long as the next corn harvest goes well. They've started going into the corn reserves to try to minimize the damage. Even though so much of the crop has been been affected, it was suppose to be our biggest yield to date, we'll still get a decent amount, but will have to readjust how much we use for reserves.
As for farmers diversifying, they get little to no incentive to go another crop. Yes, they are subsidized for crop rotations and not growing on land to let it recover, but the profit from corn is too nice. Added to that they get a discounted insurance on their crops so they get paid regardless if the crop lives or dies.
I don't trade corn, but I trade SB (sugar no.11 futures) quite regularly from home... I'm a college student trying to make some spending money between (and during) classes, and somehow it seems a lot easier to make money trading commodity futures rather than currencies or even index futures.
I had an internship at an ag-trading firm these past two weeks, and when every other day a certain grain goes limit down/up it certainly makes for an interesting experience. As for the average Joes, I think it's definitely possible for them to make money at home. There is no fee to trade at any other time except during the day, and a good amount of the moves occurred when the Chinese markets opened, and when different economic reports were released at various times in the night.
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