Markets

Originally written February 1, 2006 | Last updated February 23, 2014

Commodity versus Contract Markets

  1. Contracts "sound good" - Lenders like contracts and see them as a way to stabilize fluctuating market prices.enders like contracts and see them as a way to stabilize fluctuating market prices.
  2. Contracts make everybody average
  3. Buyers know what market will bear and write contracts accordingly.
  4. In high yielding years, specifications become important for the buyer.
  5. Beware of yield penalty and quality specifications.
  6. Example: Western U.S. Malt Barley

Commodity Markets

Decisions

  • Finding or choosing a buyer
  • Delivery to the buyer
  • Establishing price: when and how (most difficult)

Basis: The difference between the local market cash price and the futures price (cash price - futures price)

  • almost always negative
  • "weakest", "largest", "more negative" at harvest in fall or furthest from Chicago
  • "strongest", "smallest" in the spring

When evaluating pricing tools be aware of basis.

Pricing Tools

Establishing a Price Level

  • Hedging
  • Cash sale
  • Hedged-to-arrive

Establishing a Minimum Price

  • Put options
  • Cash contracts
  • Call options

Retaining Ownership

  • Store grain
  • Sell grain and buy a futures contract
  • Delayed pricing contract

Chicago Board of Trade
The Language of Futures Markets and Options UWEX Bulletin A2913
Principles of Hedging with Futures National Corn Handbook - 47

Alternative markets

Organic Markets

Corn and soybeans grown without pesticides or chemical fertilizers

Contract / Identity Preserved Markets 

  • Blue corn
  • Hard endosperm: dry milling
  • High amylose
  • High lysine
  • High oil
  • High oleic 
  • High starch
  • Low stress: fewer cracks, better storability
  • Nutritionally dense
  • Waxy
  • White food-grade
  • Yellow food-grade
  • Non-GMO

Composition of Yellow Dent Corn

  • Endosperm: 82% of kernel dry weight
  • Pericarp: outer covering of kernel
  • Germ: only living part of kernel, 25% of germ is corn oil
  • Tip cap

What can be extracted from a bushel of corn?

Corn Kernel Components
Starch 61.0%
Feed 19.2%
Oil 3.8%
Water 16.0$

 

Product choices Typical Value Total
32 lbs of starch or $0.10  per lb $3.20
33 lbs of sweetener or $0.225 per lb $7.42
2.5 gal of fuel-grade ethanol $1.28 per gal $3.20
plus
11.4 lbs 20% gluten feed $120.50 per ton $0.68
3 lbs of 60% gluten meal $342.50 per ton $0.51
1.6 lbs of corn oil $0.26 per lb $0.42
  • 1 bag of seed corn produces enough ethanol to blend 12,000 gallons of E10 gasoline, which is enough to drive 230,000 miles
  • 3.4 billion gallons of ethanol were produced in the U.S. during 2004
  • 7.5 billion gallons of ethanol will be required by the Renewable Fuels Standard annually by 2012
  • 5 billion gallons of gasoline energy is equivalent to 7.5 billion gallons of ethanol
  • 400 million gallons is how much gasoline is used on a summer day
  • 12.5 summer days is the time it takes the U.S. to burn 5 billion gallons of gasoline

Source: National Corn Growers AssociationEthanolfacts.com

Corn Uses

Over 4000 industrial uses of corn

Annual food and industrial corn use total 2 billion bushels

Primary products

  • Starches
  • Syrups
  • Dextrose

Co-products

  • Solubles: Steepwater
  • Gluten and Hulls: Steepwater for feed, gluten feed and meal, and oil meal
  • Germ: Corn oil

U.S. Corn Consumption

U.S. Corn Value

Soybean Uses

Contract / Identity Preserved Markets 

Soybean

  • Clear hilum food-grade
  • High sucrose
  • Low saturate fat
  • High oleic
  • Low linolenic
  • Natto
  • Non-GMO
  • High protein
  • Organic

Oil quality: Saturated versus Unsaturated fatty acids

Public health and medical experts generally agree that consuming large quantities of saturated fatty acids can increase serum cholesterol levels

  • Restricting the level of saturated fat in a diet is one way to reduce serum cholesterol
  • Saturated fatty acids that contribute most to serum cholesterol are lauric acid, myristic acid, and palmitic acids

Types of fatty acids

  • saturated no double bonds monounsaturated one double bond
  • polyunsaturated two or more double bonds

Soybean oil is low in saturated fatty acids, and is recommended by many leading health associations as one of the vegetable oils of choice

Coconut oil and palm kernel oil are high in saturated fatty acids

Other websites

Grain Grading USDA Official Standards

NCH-5, Popcorn Production and Marketing: http://www.agcom.purdue.edu/AgCom/Pubs/NCH/NCH-5.html 

Popcorn Production, University of Nebraska: http://www.ianr.unl.edu/pubs/fieldcrops/g426.htm 

Alternative Field Crops Manual, Popcorn, University of Wisconsin: http://www.hort.purdue.edu/newcrop/afcm/popcorn.html 

Agricultural Marketing Research Center Popcorn: http://www.agmrc.org/corn/pc.html

Corn Supply and Demand Estimates Excel Sheet (updated monthly from WASDE reports) - Kansas State
http://www.agmanager.info/livestock/marketing/graphs/Crops/Spreadsheets/Corn%20Supply%20&%20Demand.xls

Soybean Supply and Demand Estimates Excel Sheet (updated monthly from WASDE reports) - Kansas State
http://www.agmanager.info/livestock/marketing/graphs/Crops/Spreadsheets/Soybean%20Annual%20Balance%20Sheet.xls

Pre-made national supply and demand charts - Kansas State http://www.agmanager.info/marketing/outlook/WASDE/default.asp

Monthly World Agricultural Supply and Demand Estimates/WASDE Report - USDA http://www.usda.gov/oce/commodity/wasde/


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