Overview of Corn Futures:
Corn belongs to the grass family and is an annual herbaceous plant. Among the world's three major grains, corn ranks first globally in both total production and average yield. China's corn cultivation area and total production rank second in the world. Corn has a broad planting range among cereal crops worldwide. North America has the largest corn planting area, followed by Asia, Latin America, and Europe. Corn accounts for over 65% of global coarse grain production and 90% of China's coarse grain output. Corn kernels contain 70-75% starch, about 10% protein, 4-5% fat, and about 2% various vitamins. More than 3,000 processed products are made using corn as a raw material. Corn is the primary ingredient in the production of compound feed, generally accounting for 65-70%.
Corn is also one of the world's most important food sources, particularly in some African and Latin American countries. Currently, about one-third of the global population relies on corn as a staple food.
As one of the earliest introduced types of futures, agricultural futures account for a significant proportion of commodity futures. At present, agricultural futures represent the largest trading volume category, with steady growth, accounting for approximately 43% of total commodity futures trading, far exceeding the trading volumes of energy and metal commodity futures. Corn futures rank second in trading volume in the international commodity futures market. In the domestic futures market, agricultural futures exhibit substantial trading volume and open interest. The industrial demand for corn is high, its price fluctuations are relatively stable, and it has a long supply chain with widespread enterprise participation and significant influence. These factors make hedging and investment in corn futures highly attractive to enterprises. Corn's inherent seasonal volatility adds to its investment appeal, making it a perennial favorite in the international futures market. As institutional clients, especially commodity funds, and financial institutions enter the market in the future, the unique characteristics of agricultural futures will become even more appealing to these investors.
Factors Affecting Corn Prices:
Corn Supply:
Historically, in the international corn market, the United States accounts for over 40% of production, China accounts for nearly 20%, and South America accounts for about 10%. These regions are the primary producers of corn, with their output and supply significantly impacting the international market, particularly U.S. corn production, which is the most critical factor influencing global supply. Other countries and regions have lower production shares and relatively minor impacts on the international market.
Corn Demand:
The United States and China are both major corn producers and consumers. Other significant consumers include the European Union, Japan, Brazil, and Mexico. Changes in demand from these countries significantly impact corn prices. In recent years, the rapid development of corn deep processing industries in major consuming countries has greatly increased corn demand.
Domestically, corn consumption mainly comes from food, feed, and industrial processing. Food consumption shows little overall change and has a relatively minor market impact. Feed accounts for the highest proportion, over 70%, and fluctuations in feed demand have a substantial market impact. Industrial processing accounts for about 14% but has grown rapidly in recent years, with annual usage increasing by over 2 million tons, significantly influencing the market.
Corn Import and Export:
Corn imports and exports significantly impact the market. Imports increase domestic supply, while exports raise overall demand. Internationally, it is crucial to monitor major exporters like the United States, China, and Argentina, as well as importers like Japan, South Korea, and Southeast Asian countries. Changes in production and consumption in these countries directly affect international corn trade. Domestically, attention should be paid to export policies, as exports have a noticeable stimulating effect on the domestic corn market.
Corn Inventory:
The level of inventory for a commodity at any given time reflects changes in supply and demand. Studying inventory fluctuations helps in understanding corn price trends. Generally, when inventory levels rise, supply is ample; when they fall, supply tightens. Ending inventory levels and corn prices often show an inverse relationship.
Corn Cost-Benefit Analysis:
Cost-benefit analysis for corn is a primary factor influencing farmers' planting enthusiasm. Corn costs impact market prices to some extent. When market grain prices are too low, farmers may withhold sales. Profitability affects planting plans for the following year; increased profits may lead to expanded planting areas, while decreased profits may reduce them.
Price Ratios with Other Agricultural Commodities:
The price ratio of corn to other major agricultural products affects corn's supply and demand, influencing its production and sales, ultimately affecting future price trends. The price ratio between corn and soybeans (for planting) and between corn and wheat (for consumption) is particularly important.
Financial and Monetary Factors:
Interest rate changes and exchange rate fluctuations are common phenomena in global economic activities and often cause commodity futures price fluctuations. Generally, when a currency depreciates, corn futures prices rise; when a currency appreciates, futures prices fall. Therefore, monetary interest and exchange rates are key factors, alongside supply, demand, and economic cycles, in determining corn futures prices.
Economic Cycles:
The world economy develops through alternating cycles of prosperity and recession, a fundamental characteristic of modern economic society. Economic fluctuations occur across almost all sectors during these cycles. Economic cycles, reflected in national income fluctuations, affect production, employment, price levels, interest rates, and other economic indicators. Corn prices also fluctuate in response, making macroeconomic analysis of cycles crucial.
Storage and Transportation Costs:
Changes in factors like crude oil prices, ocean freight rates, and transportation capacity shortages affect transportation costs and, consequently, corn prices.
Basic Concepts
Soybean Futures
Soybean futures are contracts where soybeans are the underlying asset, allowing traders to buy and sell soybeans at a pre-determined price at a future date. This financial instrument not only provides market participants with risk management opportunities but also has a profound impact on the global agricultural industry.
Soybeans are annual herbaceous plants belonging to the legume family, commonly known as yellow beans. China is the origin of soybeans and has a history of over 4,700 years of soybean cultivation. In contrast, soybean cultivation in Europe and the United States is much shorter, as it was introduced from China in the late 19th century. By the 1930s, soybean cultivation had spread worldwide.
Soybeans can be divided into genetically modified (GM) and non-genetically modified (non-GM) varieties. In 1994, Monsanto in the U.S. introduced genetically modified herbicide-resistant soybeans, which became the first GM soybean variety to be approved for commercial use. By 2001, 46% of the world's soybean planting area was occupied by GM varieties. The United States and Argentina are the primary producers of GM soybeans, while China primarily cultivates non-GM soybeans.
Soybeans are an important dual-purpose agricultural product, used both as food and oil. As food, soybeans are a high-quality, protein-rich plant source, with fat, protein, carbohydrates, and fiber composition ratios very similar to those of meat products. Soybeans contain 35-45% protein, which is 6-7 times higher than cereal crops. The United Nations Food and Agriculture Organization strongly advocates the development of soybean-based foods to address protein deficiencies in developing countries. As an oilseed crop, soybeans are the world's primary provider of plant oil and protein meal. Each ton of soybeans produces approximately 0.18 tons of soybean oil and 0.8 tons of soybean meal. Soybean oil, derived from soybeans, is of high quality and nutritional value, making it a major edible vegetable oil. As a byproduct of soybean oil extraction, soybean meal is primarily used as a protein supplement for poultry, pigs, and cattle, with a smaller portion used in brewing and pharmaceutical industries.
Agricultural futures, as one of the earliest types of futures contracts, occupy a significant share in commodity futures. Agricultural commodities have the largest trading volume, showing steady growth and consistently accounting for about 43% of total commodity futures trading, far exceeding the trading volumes of energy and metal commodity futures. In the domestic futures market, agricultural futures have large trading volumes and open interest.
With the entry of institutional clients, especially commodity funds and financial institutions, the unique characteristics of agricultural commodities will become increasingly attractive to institutional investors. Soybeans, as one of the major commodity futures, remain among the top three in the international market. Soybean prices are volatile, the supply chain is long, and many companies are involved, which broadens the impact and intensifies the hedging and investment demand. The seasonal volatility of soybean prices makes them highly attractive for investment, turning soybeans into a perennial favorite in the international futures market.
2. Exchanges and Contract Specifications
Soybean futures are primarily traded on the Chicago Mercantile Exchange (CME). Each contract represents a specific quantity of soybeans, such as 5,000 bushels. Contract specifications also include delivery months, minimum price fluctuation units, etc., providing clear trading rules for market participants.
3. Market Participants
Participants in the soybean futures market include farmers, traders, processors, investors, and speculators. Farmers and processors typically use the futures market to lock in future sales and purchase prices, mitigating the risks associated with market price fluctuations. Investors and speculators, on the other hand, buy and sell futures contracts to profit from price movements.
Key Factors Influencing Soybean Prices:
Soybean Supply Analysis
Soybeans globally are harvested in two peak periods, based on the hemispheres. In South America (Brazil and Argentina), soybean harvesting occurs from March to May, while in the Northern Hemisphere (U.S. and China), harvesting takes place from September to October. Therefore, soybeans are concentrated in supply every six months.
The U.S. is the world's largest supplier of soybeans, and any changes in its production significantly impact the global soybean market. China, one of the largest importers of soybeans, sees fluctuations in genetically modified soybean imports and prices that directly affect the domestic soybean supply market, consequently influencing the price of non-genetically modified soybeans. As a result, soybean import volumes and prices have a significant impact on domestic soybean prices.
Main Factors Influencing Yellow Soybean Prices:
Soybean Supply Analysis
Globally, soybeans are harvested in two main periods, corresponding to the hemispheres. In South America (Brazil, Argentina), the soybean harvest period is from March to May, while in the Northern Hemisphere (United States, China), the harvest period is from September to October. As a result, soybeans experience concentrated supply every six months.
The United States is the largest supplier of soybeans globally, and any changes in its production have a significant impact on the world soybean market. China is one of the largest importers of soybeans in the international market, and the import volume and price of genetically modified soybeans directly affect the domestic soybean supply market, thereby impacting the price of non-genetically modified yellow soybeans. Therefore, the import volume and price of soybeans have a major influence on domestic soybean prices.
Related Commodity Prices
As a food product, substitutes for soybeans include peas, mung beans, and kidney beans. As an oilseed, substitutes for soybeans include rapeseed, cottonseed, sunflower seed, and peanuts. Changes in the production, prices, and consumption of these substitutes have an indirect effect on soybean prices.
Soybean prices are directly linked to its by-products, such as soybean oil and soybean meal. Changes in the demand for these two products directly affect the demand for soybeans, thereby impacting the price of non-genetically modified yellow soybeans.
International Soybean Market Prices
China's soybean imports account for a significant proportion of the world's soybean trade, and international soybean prices have a reciprocal influence on domestic soybean prices. When international soybean prices rise, it impacts the volume of domestic soybean imports, which affects the domestic soybean supply, thus influencing the demand for domestic non-genetically modified yellow soybeans and driving up their prices. Additionally, an increase in international soybean prices can influence market sentiment, creating expectations that domestic soybean prices may rise, which can also cause futures prices to increase.
Storage and Transportation Costs
Transportation costs have a significant impact on yellow soybean prices. With imported soybeans accounting for over 60% of domestic consumption, international shipping prices, which directly influence imported soybean prices, will directly affect domestic yellow soybean price fluctuations. Additionally, regional transportation capacity shortages within the domestic market can drive up transportation costs, indirectly stimulating an increase in yellow soybean prices. Therefore, factors related to shipping, such as transportation capacity shortages, oil prices, and steel prices, also serve as indirect factors influencing yellow soybean prices.
