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Commodity Trading: Corn Futures Supply

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Supply / Production Considerations

Planting in the Corn Belt states of Iowa, Illinois, Nebraska, Minnesota and Indiana tends to start in mid April and run through mid May.  In recent years, the majority of planting in the Corn Belt has started by April 20^th and been completed by June 8^th.  Ideally, planting should be done when the temperature is moderate and conditions are dry.  If the fields are either too wet or a late snow hits, then planting will have to be put off.  Late planted crops tend to produce lower yields.  Historically, the probability of delay is quite large, so very often during planting the Corn market begins to build a risk premium into the crop at this time.

USDA/NASS Crop Progress Timetable 
Approximate Dates of Release

Several days after the Corn crop has been planted, sprouts begin to emerge from the soil.  These sprouts grow into the tall lanky plant we all recognize as Corn.  As the Corn plant matures, ears grow.  The kernel which grows inside the ear of Corn is a seed, and before seeds can be produced, the plant must pollinate.  In order for pollination, the Corn ear produces a tassel, which is used to capture pollen.  Tasseling usually occurs 10 days before the Corn plant begins to silk, or the emergence of a silk like strand from the end of the ears. 

Usual Planting Dates for Corn 
(Top 5 producing States)

Dates based on the December 1997 USDA Agricultural 
Statistics Board Usual Planting and Harvesting Dates Report

Silking, or pollination, is the most crucial stage of development of the Corn plant.  Pollination only occurs when the crop receives an adequate amount of moisture and temperatures are semi moderate.  If pollination does not go well, crop production will drop substantially.  However, once pollination has occurred, the Corn crop is almost impervious to damage, and often referred to as a “made crop”.  The median date for pollination is the fourth of July, and hence the Corn market tends to reach its maximum price by the first week of July.  In several years, seasonal tops are put in by late May as the last of the new crop Corn is planted.  In most years after planting, Corn prices tend to be weighed down by progress of the crop.  Only in years when severe droughts have interfered with pollination have Corn prices continued to rise.  

After pollination, in late June and early July, the Corn kernels begin to form.  The kernels are said to have “doughed” when they are showing a thick or dough-like substance.  The dough-like substance is filled with a milk, or protein.  It is the high protein content of Corn that makes it an attractive feed, which accounts for the bulk of the demand for Corn grown in the United States.  As the Corn plant concentrates its resources on making kernels, the stalk of the plant begins to die.  This causes the entire Corn plant to die, and the kernels begin to dry up.  As the kernels dry out, the rounded end of the kernel not attached to the cob begins to get a small impression in it, or a “dent”.  When roughly half of the kernels are showing dent, doughing is considered completed.  As the Corn crop is doughing, the plant needs only minimal precipitation to survive as long as pollination has occurred properly.  However, extreme heat, with little or no precipitation, can speed up the denting process, lessening the protein content of the Corn grown and, hence, its usefulness as a feed  (this situation is extremely rare).  Normally, the US Corn crop completes doughing by late September.

Denting, or the drying and concentration of the protein, of Corn in the kernels usually occurs from mid August through September.  Denting is said to be completed when all kernels are showing the telltale dent and the ear is firm and solid.  There is no milk present in most kernels.  During the final stages of denting, the crop is susceptible to early autumn frost damage.  It is not uncommon to see a retracement rally within the context of a greater bear market during either the doughing or denting stages of development, due to an extreme heat wave or an early frost.

The Corn plant is considered mature when the plant is about ready to be harvested with shucks opening and there is no green foliage present.  When the Corn plant is mature, it is considered safe from frost.  Corn typically matures from early September, for early planted crops, to early November for late planted and replanted crops.

After the Corn crop has matured, it is harvested.  The bulk of harvesting takes place in late September through mid October.  Ideally, after the Corn plant has matured, farmers like to see cold weather, and little or no precipitation, so the ground is firm for the harvesting equipment.  When too much precipitation is present and the weather is unseasonably warm, the ground can be too muddy for the heavy equipment used in the harvest effort, and there is a potential for mold based diseases and insect problems in extreme cases.  Harvest delays are typical, but very rarely do they result in any real loss of supply.

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Disclosure of Risk: The risk of loss in trading futures and options can be substantial; therefore, only genuine risk funds should be used. Futures and options ARE not suitable investments for all individuals, and individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option would result in a futures position.

SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST 15 YEARS.  THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR.  EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS.  NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS.  NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE. 

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.