The Relationship Between Livestock Production and Corn Prices
Another way of looking at price interactions between wheat and corn great impact on the relationship between corn (feed) and wheat prices. Will this increase in “fatter cows” be a primary catalyst for corn prices now The agency projected a 20% decrease in wheat feed and residual. Is this as bad as it gets for corn, soybeans and wheat prices? Chicago and Kansas wheat are among the top-performing major commodities.
Department of Agriculture reported last week in its year projection of supply and utilization that the use of corn for livestock feed will decrease 2. Drought in Kansas and colder-than-normal conditions in Canada may decrease the supply of wheat even as other parts of the U.
Price Spread Between Corn and Wheat Presents Opportunity | Seeking Alpha
Among the options available to traders is a short position in corn futures and an offsetting position in wheat futures. The unusual price behavior, combined with the effects of seasonality in the grains, may also create a situation for options traders.
Put options in corn and call options in wheat will help to limit the risk that the pricing relationship does not quickly reverse and the trader will not be exposed to margin risk. The CME Group offers a wheat-corn intercommodity spread option that will follow the spread relationship as well. Since Friday, the spot price relationship for corn and wheat has reversed. As of 22nd June, corn is trading at The futures prices for July contracts is still showing a reversed relationship with corn trading for Traders may still profit from the reversion of the futures prices, or may watch the spot prices for continued opportunities.
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Corn prices have also dropped, but not to the same degree. When trading wheat, corn, or any other agricultural commodity, it's important to understand the factors that can affect price movement and trends.
At a high level, weather is a big factor in agricultural commodities due to its effect on any given harvest. For example, extremely hot weather, or drought-like conditions can lower the yield of a particular crop, which in turn impacts supply.What’s Driving Corn and Wheat Prices?
Fluctuations in demand can also obviously affect price. Wheat is primarily used as food, so economic conditions around the world contribute to the demand for wheat.
Iconic Futures Spread: Wheat vs. Corn — tastytrade blog
Corn, on the other hand, is primarily used to feed animals, and as a component of ethanol. The varying demand for ethanol, which is often mixed with gasoline, can, therefore, impact the price of corn. Another key aspect of trading agricultural futures is an understanding of the crop marketing year - a topic that is covered in the aforementioned episode of Closing the Gap.
At a high level, this involves tracking when a crop is planted and when it is expected to be harvested. Because this often occurs across two different calendar years, the crop marketing year can help track actual planting and harvesting. For example, the wheat marketing year runs from June 1st of a given year through the end of May in the next year.
Wheat at a 57% premium to corn - what does this mean?
Wheat also has two planting seasons, spring and winter. Corn, on the other hand, has one primary growing season the same calendar yearAs you may already know, corn is typically planted in spring and harvested in late summer - much like spring wheat. Corn Spread While many factors are often considered when speculating in agricultural futures weather, demand, crop marketing year, etc On this episode of Closing the Gap: Futures Edition, the hypothetical process of identifying and executing a spread trade using wheat and corn futures is presented.
In this case, the Closing the Gap team uses the historical price relationship between wheat and corn to identify a possible opportunity. As detailed above, the price of wheat has dropped to a greater degree than the price of corn since the height of summer.
Price Spread Between Corn and Wheat Presents Opportunity
The chart below illustrates the spread between wheat and corn prices over the last couple of years. Using this information, we can observe the range of the relationship between the prices of the two commodities: Theoretically, a spread between the two futures might look attractive to traders at either extreme in the range.
For example, if the spread between the two narrowed the lower end of the rangea futures trader might look to buy wheat and sell corn, expressing a market assumption that the spread will widen.