CME Group Corn futures are the most liquid agricultural product in history. Underlying the derivative, corn stands as the most widely planted crop in terms of acreage in the United States in the 21st century. Demonstrating the grain’s staggering versatility, applications of corn range from ethanol fuel to animal feed, cooking oil, sweeteners, alcohol, food ingredients, and cereals. From breakfast to the morning commute, lunch, the ride home, dinner, and the evening beer, corn touches all occasions in modern life. In its derivative forms of Corn futures and options, the product’s wide reach is reflected in its sensitivity to micro and macroeconomic events throughout the year. Unpredictable growing conditions including extreme heat, drought, cold, and rain can propel Corn futures during the summer “weather markets,” when seasonal volatility peaks. With its stalks on the pulse of the moment, Corn futures also respond to macroeconomic and geopolitical supply shocks, demonstrated by Corn’s upward trajectory at the onset of the Russo-Ukrainian War when geopolitical instability threatened supply.
A rich history
The statue Agriculture and the Chicago Board of Trade building
The Chicago Board of Trade was established as a private membership organization in 1848 with the goal of facilitating the city’s economic activity, including its burgeoning grain trade. The Crimean War of 1853-1856 spurred international demand for American grain, forcing reforms on an industry now under pressure to move product more efficiently. Centralized trade coalesced within the Board’s walls, memberships were further formalized, and quality grading standardized. Forward contracts, which establish a price for future delivery, began trading large size in the late 1850’s1. In 1865, the Board established a set of standardized forward contracts, and in 1877 Corn futures in Chicago were born. Corn futures were traded via open outcry (i.e., yelling and hand signals) in the Chicago Board of Trade pits until the Board’s merger with the Chicago Mercantile Exchange and the advent of electronic trading in the 21st century. A sculpture of Ceres, the Roman goddess of grain, stands atop the Chicago Board of Trade building and two statues respectively signifying Agriculture and Commerce guard the entrance to the former trading floor.
Corn futures are the world’s most liquid Agricultural derivative and average daily volume exceeded 400,000 in the second quarter of 2023. Soybean, Soybean Oil, Soybean Meal, and Chicago Wheat futures round out the top five most traded CME Group agricultural products.
Grains and oilseed benchmark average daily volume (ADV), all expirations
Case study: corn at war
Corn futures’ robust liquidity enables it to respond quickly and efficiently to macroeconomic and geopolitical events. Russia invaded Ukraine on February 24, 2022, sending May 2022 Corn futures markets soaring intraday, before settling up 9 cents per bushel at the close, as the world feared that Black Sea corn would face complicated transport out of the region. Sentiment quelled the following day and Corn futures fell 5%, as the conflict was expected to be quickly resolved. The first week in March, however, brought the realization that the invasion had initiated a full-fledged war not anticipated to resolve in mere days or weeks, and Corn climbed sharply. By the time the May 2022 Corn futures contract expired, the final settlement price was more than $2 per bushel greater than its average price in November and December of the prior year.
May 2022 Corn futures (cents per bushel)
We are corn people
Corn trade flows (million bushels)
Owing to its stunning versatility and staggering productiveness, corn is the most planted crop in the United States. Increasing in abundance throughout the 19th century and into the 20th, the crop’s reach has not let up, as both planted acreage and total supply have yet improved in recent decades. Throughout the near-150 years since the launch of Corn futures, yields have increased dramatically, as selective breeding and genetic practices have advanced. Exports have averaged steadily at 2 billion bushels per year since the 1970’s.
The Renewable Fuel Standard, the U.S. policy originating in 2005 requiring transportation fuel sold in the United States to contain a minimum volume of renewable fuels, revolutionized corn demand. In 2005, only 17.5% of the domestic supply of corn (1.603 billion bushels) was used as alcohol for fuel. In 2022, that share rose to almost 44%, totaling 5.275 billion bushels of U.S. corn to fuel alcohol. Feed and residual use, though diminishing dramatically in percent share, fell only from 6.111 to 5.300 billion bushels due to a significant increase in overall domestic supply during that time. In other words, domestic production and supply of corn has increased since 2005 and that new supply has been overwhelmingly absorbed by ethanol production.
Domestic corn disappearance
Conclusion: corn reigns
King corn: it has the juice. Corn holds a very special place in the American economy and landscape, but its reach is global. Corn futures in Chicago react to renewable fuel policy at home and transport negotiations in the Black Sea alike. CME Group offers a robust suite of corn derivatives, from front-month Corn futures and options to New Crop Weekly options tailored for hedging exposure or expressing a nuanced market view. Learn more at www.cmegroup.com/corn
References
1 Cronan, William. 1991. Nature's Metropolis: Chicago and the Great West. New York: W. W. Norton & Company, Inc.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
