Grains Futures


Grains Futures are mostly used for long-term protection from risk of price increases, or speculation in the movement of Grains Futures prices. It is traded on the CME Globex electronic trading platform and on the New York Board of Trade.

More About Grains Futures

Continue reading to learn more about:

Read a grain's future price
Definition
How does the grain market work?
Contracts for grain futures
What happens if you don't sign the contract for the grain?


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Read a grain's future price


A grain's future price is determined by supply and demand. The price of a commodity depends on the amount available versus the current demand of the market. If there are large amounts of a grain available and the country producing it has high production rates, you can expect its futures price to fall. If there is less available and replenishment time is longer, the future's price will rise.


 
 

Definition


Grain futures reflect the collective long and short positions of buyers and sellers. Grain futures markets allow farmers and other sellers to lock in prices for the sale of their products before they harvest. Farmers who sign futures contracts place themselves in a position to profit if market prices rise above the price specified for them in their futures contracts. On the other hand, if prices fall below that specified in a farmer's contract, he or she will be required to sell at a locked-in lower price, which may represent a loss.

 

How does the grain market work?

•The grain market-also known as the corn, wheat and soybean market-is a competitive and often volatile marketplace. Grains are transported in rail cars and trucks and shipped by boat to deliver them to processing plants and distributors. Futures contracts provide a mechanism for farmers to protect themselves from the full force of this volatility.
•The futures contract specifies the quality, quantity, delivery location, price, insurance(optional) and more. Farmers use these contracts because it is difficult to predict exactly what their income for the coming year will be. An inverse relationship exists between the grain market and ethanol prices; when one increases, the other decreases.
 
  • Contracts for grain futures

    A grain future's contract is an agreement to purchase an agreed upon amount of grains at a specific price on a specific date. A futures contract is essentially a buy and sell order combined into one. The contract can be closed or liquidated with the help of a futures broker no matter where the contract is held. Individual investors use the futures markets to hedge risk, or speculate on the direction that grain prices are going.
  • What happens if you don't sign the contract for the grain?

    With the Grain Futures, you're able to take advantage of a potentially costly consequence of not completing grain contracts. If possible, you can buy a futures contract in order to recover some of your loss. In the event that you don't have enough money or grain to fill your delivery commitment, an offsetting short position closes out your previous long position at a profit and limits your loss to the applicable margin requirement.