From the July/August 2014 issue of Futures Magazine • Subscribe!

Profiting in summer grain markets: A professional approach

With 2014’s brutal winter a distant memory, the height of summertime is finally here. For futures traders, that often means looking for opportunities in the grain markets. For amateurs entering the market for the first time, however, this can often end in less-than-desirable results. To prevent this, you may want to follow the lead of professional traders.

The 2014 corn market presents a perfect setup to illustrate the differences between a professional and amateur approach to taking cash out of the corn, wheat and soybean markets.

Unlike with soybeans, the United States is the world’s largest exporter of corn. However, the U.S. share of the export market has shrunk considerably in just the last decade. In 2005, the United States supplied nearly two-thirds of the world’s corn exports. By 2015, that share will have fallen to one-third. With the advent of new exporters, such as Argentina, entering the trade arena, global production figures and ending stocks play a more important role in price forecasting for corn than they once did. 

It is the heart of summer, however, in the United States. This means there are about 60 days left of growing season. Therefore, the U.S. weather in the Midwest and the state of the developing crop are key issues to focus on when researching corn this time of year. 

Trying to trade futures on weather, however, can be a tough racket. Everybody tries to do it. Agricultural market traders love to position for summer weather problems and hope for a flash rally on real or imagined crop problems. 

“Buy futures with a tight stop,” a broker will recommend.

“Buy the calls with limited risk,” an advisory newsletter will propose. 

Bet right, get your weather scare and bingo! You have a big win. What a rush! It can and does happen. 

There is a name for this whole process—It’s called “gambling.”

You can do it by betting on weather problems in the ag markets, or you can do it by calling a Las Vegas bookie and taking the Cowboys +6 on Monday night. It’s great if you are out for a little fun and excitement, but for a serious investor looking to grow capital consistently—not so much.

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