Corn prices are surging with weak crop report, what commodity strategy or futures strategy has the best advantage here?

The CTA is required to follow the strategy and markets outlined in their disclosure documents. Managed futures give investors the ability to diversify their investment portfolio into the commodity markets.

Chicago, IL (prHWY.com) August 13, 2012 - The rise in corn prices can be attributed to the heat wave and draught that hit the Midwest early this summer. Corn was trading at just over $5 a bushel in mid-June and has since risen over $8 a bushel for the September contract. This is a 50% rise in the price of corn in the past six weeks. The U.S Department of Agriculture has just release their monthly crop report. The report shows that only 24% of the corn crop is rated good to excellent in the 18 of the key states.

The report also stated that 48% of the corn crop is in poor shape. The worst is not over as the drought and heat continues throughout the Midwest. The rise in corn prices also brings bad news for other agricultural producers who rely on corn as feed for their livestock. There are a number of different ways a trader can take advantage of the rise in the price of corn. One commodity strategy would be placing a trade with a futures contract or an option on a futures contract. Another commodity strategy a trader could use would be trading a stock that could be affected by an increase in the price of corn. The main issue with this strategy is that the price of a stock has more factors than the price of a commodity they buy or sell. Revenue and profits may be able to be sustained. The futures market and the cash market for commodities are the only two places for investors or traders to get direct exposure to the commodity markets. The cash market for commodities involves delivery or acceptance of the actual commodity.
The trader also needs very high volume of the commodity in order be profitable. An individual trader wouldn't want to take delivery of 1,000 barrels of oil. On the other hand the trader knows he cannot make a lot of profit on 10 barrels, he needs 1,000. The futures market is liquid and has ease of entry. Trades can be placed from your computer and monitored throughout the day. One futures strategy would be to trade the futures contract. The trader can buy a futures contract or trade a spread using futures. Another futures strategy is trading options on futures contracts. The trader can buy an option, sell an option, or place an option spread. The strategy will most likely depend upon the traders risk tolerance. For an individual who is not interested in doing their own trading, there are commodity trading companies available for investors to get exposure to the futures market. One of the commodity trading companies available are CTA'S or commodity trading advisors. CTA's are professional traders who make their trading program available to those with the ability to open a futures account, also referred to as managed futures. CTA's are given power of attorney by their clients to trade on their behalf.

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Tag Words: commodity trading, futures strategy, commodity strategy

Categories: Business

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