CBOT Corn Is King In Open Interest In Physical Commodities
CHICAGO (Dow Jones)--The amassment of speculative interest in commodity markets has not only launched Chicago Board of Trade corn futures to record open-interest levels, it also has propelled corn futures to the status as the most-liquid physical commodity traded, based on open interest.
CBOT corn open interest currently stands at 1,045,210 contracts, just shy of its record of 1,064,501 set Feb. 10.
Including financial contracts in the commodity arena, such as bonds and eurodollars, corn also emerged as one the most liquid commodities overall.
It recently surpassed open interest in the highly touted sweet crude oil futures contract at the New York Mercantile Exchange. Open interest in crude oil stands at 926,564 contracts as of Feb. 14 based on data from Nymex.
Open interest is the total number of outstanding contracts that are held by market participants at the end of each day. Open interest also measures the flow of money into the futures market.
The ability of corn to attract a huge amount of speculative fund buying in the market has served as the spark to lead corn to record open-interest levels, said Jack Scoville, analyst with the Price Futures Group in Chicago.
The allure of commodities as a viable alternative investment to lower-yielding equity markets has attracted increased participation in recent years from indexes that use commodities as an alternative asset class. Crude oil and metals were the primary recipients of the boom, with agricultural futures garnering their share of investment money in the past year. The impact of this new-managed money in grain futures provides liquidity and volatility to the market, analysts said.
To accommodate this new business the CBOT slowly increased position limits last year, allowing the speculators more room to enter the grain markets.
From the point of view of the speculator, interest in alternative asset classes for the purpose of diversifying investments has made corn an attractive feature, with its many uses such as livestock feed, sweeteners and competitive fuels projecting strong long range demand outlooks, said Scoville.
Inflation fears are driving a lot of interest into commodities with mainstream media and others talking about alternative investments.
The liquidity of the market is seen as a plus, as the ability of large participants to put in big orders without making dramatic price moves has some people dubbing corn "the Eurodollar contract of the grain market." These small price movements are also appealing to small investors as the vast liquidity enables the market to absorb large trades without exposing participants to wide price moves on a daily basis, analysts said.
The Chicago Mercantile Exchange's Eurodollar futures are one of the most liquid futures contracts in the world, with open interest over 9 million contracts.
In fact, corn has held generally in a trading range of $2.00 to $2.30, basis March, during the open-interest upswing.
Corn is the most visible of agricultural futures and a lot cheaper to trade than crude oil, near $60 a barrel, as traders look to diversify within the commodity sector. Analysts said for investors wanting to get exposure to commodities, they can't just buy oil, sugar and gold; they need to diversify. Based on the liquidity of corn, it has been able to absorb heavy volumes of commodity index fund buying and still sustain a sideways trading pattern, analysts said.
The cost factors make corn attractive as well, as investors measure the cost to trade. The minimum margin requirement to open a crude oil futures contract runs between $5,000 and $10,000 versus opening a corn futures contract with a margin requirement between $400 and $500, said Scoville.
The big open interest is the sign of the times, with huge fund participation and record ending stocks providing big hedging opportunities for commercials and producers alike, said Dan Cekandar, analyst with Fimat Futures in Chicago.
The increased interest in alternative fuel sources and the growth potential of corn-derived ethanol has brought increased attention to the market, with traders watching to see if what happened to sugar futures at the New York Board of Trade is on tap for corn futures. Sugar prices are just off 25-year highs as top-producer Brazil funnels cane production to ethanol versus sweetener production as it faces a smaller-than-expected crop.
Auto makers such as General Motors (GM) and Ford (F) are promoting their fleet of E85-ready vehicles that run on ethanol blends, and with supportive comments by President Bush on ethanol, corn futures are in line to reap the benefits of increased ethanol production, analysts said.
Source: Andrew Johnson Jr., Dow Jones Newswires, 312-347-4604; [email protected]
