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Commodity Trading: Corn Futures Demand

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Demand / Consumption Considerations

Livestock feed accounts for roughly 60 to 65 percent of the total use of the cash Corn crop. In recent years, corn has accounted for a quarter of all livestock used. Corn is so attractive as a livestock feed for two major reasons:

Corn is good grain for fattening livestock and poultry because of its high starch content. In addition, it contains more oil than other cereal grains, making Corn an excellent source of nutrients and a very high energy feed.
Acre for acre, Corn yields more animal feed in both grain and forage than any other crop, although the cost to produce Corn in terms of labor and equipment, is no more expensive to plant and harvest than other cereal grains (and most other crops).

Because the main use of Corn is for animal feed, any significant increase or decrease in animal production can have dramatic affects on the price of Corn. With large and growing animal numbers worldwide, the demand for Corn (and all grains) has been tremendous in recent years.

Corn is also heavily used for industrial purposes. Paper and wallboard are made from the stalks, while husks are used as fillers. Cobs are used to make charcoal, as fuel in burning, or processed into industrial solvents. However, the kernel of the Corn plant is still the most valued part of the plant for industry.

Corn kernels are used for corn oil, starches, dextrin, syrup, adhesives, glues, textile fibers, soaps, sizing, paints, varnishes, explosives, as well as a host of other industrial and human consumption products. The aforementioned materials are typically produced after the Corn kernel has been processed by a technique known as wet milling. Wet milling is when the Corn kernel is soaked in diluted sulfuric acid for roughly 60 hours. The hulls are now separated from the kernels which are used to make the laundry list of items mentioned earlier.

Dry milling is used to make cereals, flour, hominy, grits, feeds and various industrial products. The process of dry milling involves spraying the cornhusk with steam to soften the cob, and then removing the kernels which are then ground.

With the plethora of uses for Corn, it is no wonder that Corn is the most widely exported commodity in the United States. The United States is the world’s largest producer of Corn and the world’s largest exporter. It is estimated that during the 1998/99 crop year (which runs from September 1^st, 1998 to August 31^st, 1999), the United States will export 1,675 million bushels. Considering that the United States is also the world’s largest user of Corn, the worldwide demand for Corn is astronomical. The largest users of US Corn are China, the former Soviet Union, South Korea, Mexico and Japan. Sales to Eastern Europe have been expanding rapidly in recent years, as well.

SPONSORED BY:

Commodity Trader's Almanac 2008
Scott W. Barrie
Best Price $26.37
or Buy New $26.37

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.