Profit From The Bull Market In Corn
The Dynamic Wealth Report
April 28, 2008
The Truth About Investing In Corn
In Friday’s article we discussed the poor state of the ethanol industry.
We also touched on how the industry’s being impacted by rising corn
prices. Corn, it seems, is becoming a mini celebrity. Everyone’s been
watching prices move to new highs. And everyone’s riding the corn
bandwagon.
Farmers are celebrating the high prices. Speculators and traders are
jumping into the markets looking for fast money. Environmentalists are
still trying to decide if ethanol from corn is “good” or “bad.” Government officials are even getting in on the debate as they get to
complain about food inflation.
Now, you don’t need me to tell you how important corn is. It’s one of
the most important food products in the United States and for a
significant part of the world. Corn is the largest crop in the US. We
produce about 170 million metric tons annually - almost half of the
world’s total production.
-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?
Our own small-company specialist, Robert Morris, has found a
way to 'sniff out' tiny penny stocks on the verge of a major breakout. And
the timing for this has never been better.
You see, the system takes advantage of an obscure SEC regulation that
sends penny stock prices through the roof.
We've seen some stocks gain 852%... 5,450%... even 17,496% in no time
flat.
Click here
for the details...
-----------------------------------
A little background.
Corn was first domesticated around 9,000 years ago in Central Mexico.
Its use spread throughout the Americas, and continued on to Europe in
the 16th century. The corn we traditionally think of – the kind we eat
at BBQs and picnics - is known as sweet corn. Popping corn is another
genetic variety.
Amazingly, the corn you and I consume is just a tiny percentage of the
total crop. The vast majority of corn production is of the dent and
flint varieties. Dent and flint corn is used either as animal feed or
for industrial products.
According to the US Department of Agriculture, almost 70% of corn is
used as feed for animals. Corn can also be processed into other useful
products like corn starch, corn syrup and ethanol.
Corn is a picky crop.
Planting conditions need to be just right. As a matter of fact, right
now market speculators are spending more time watching the weather
channel than CNBC. This year rains are delaying planting schedules. The
longer it takes to get the seeds into the ground the lower crop yields
will be.
Making money on corn – futures or options?
Corn trades primarily on the Chicago Board of Trade where investors,
speculators, and industry participants can buy and sell futures. For
those of you who don’t know, there is a big difference between a future
and an option.
Both futures and options allow you to use leverage. And both can provide
big profits. With an option you own a right but not the obligation to
complete a trade. This means if you bought an option on settlement day
it’s your decision to complete the transaction.
A future is different. If you own a future on settlement day you have an
obligation to settle the transaction. If you own a Corn future, you
might find yourself the proud owner of 5,000 bushels.
Now with any trade it’s important to know what you’re buying. One
contract of corn represents 5,000 bushels. Just so you have an idea,
each bushel is about 56 pounds (husks and cobs are removed). Corn trades
by the quarter cent which is $12.50 per contract. So a penny move in the
price of corn moves the value of a contract up or down by $50.
Some investors don’t know this, but the exchange limits how much corn
prices can move. These limit levels prevent prices from getting out of
hand when important news or events occur. For corn the maximum move is
20 cents. So when prices move by $0.20 in a day, all trading stops. If
you want to trade you will need to wait for the next day.
Futures trading can be complicated.
If you still want to invest in corn, but don’t want to use options or
futures, there’s an easier way. A number of Agricultural ETFs have been
created. They track the movements of a variety of commodities. One is
the PowerShares DB Agriculture Fund (DBA). This fund holds a basket of
commodities including Wheat, Soybeans, and Sugar. More than 24% of the
fund is invested in Corn. So if you’re looking for a safer way to invest
in corn, this ETF might be a good choice.
• Airline Index (Down 8%)
After staging a decent short term rally, the airlines have started
falling. Increasing oil prices have made operations more expensive, and
the stagnant economy is reducing the number of customers. Bankruptcy
filings by a number companies haven’t helped either.
Print
Page
Bookmark Us
Home | Whitelist Us |
Terms of Use |
Privacy Policy |
Contact Us | Security |
Site Map