What is corn trading and investing?

What is corn investing and trading?

Corn investing and trading are the two ways you can open a position on the price of this soft commodity. Both methods give you the opportunity to make a profit from changes to corn prices without having to take possession of any physical kernels.

When you trade corn, you’ll be speculating on the price of corn as an asset, predicting whether it’ll rise or fall. When you invest in corn, you’ll be buying stocks or ETFs that are related to the commodity, for example agricultural shares or funds.

Trading and investing in any type of asset is a complex activity, and you need to make sure you understand the risks involved before committing your capital.

Learn more about commodities

How to trade or invest in corn

1. Decide whether to trade or invest in corn
2. Open a live account or log in
3. Search for your opportunity on our platform
4. Take steps to manage your risk
5. Open and monitor your position

If you decide to trade on the corn market, you can speculate on the spot (cash) or the future price of the commodity, or corn ETFs. If you decide to invest in corn, you can do so via corn stocks or ETFs.

Four top ways to trade or invest in corn

There’s more than just one way to gain exposure to these grains, whether you’re an investor or trader. Here’s a breakdown of the ways you can do it with us.

Spot corn

The most direct way open a position on corn. With us, you can speculate on commodities directly, meaning you’ll trade on corn at its current market price via spot (cash) trading. Here, you’ll get continuous real-time pricing to take a position as and when market moves happen.

Because you won’t take physical delivery of any actual corn when trading it, you can go long or short on the price.¹ This means you can make a profit or a loss whether the price of corn is rising or falling.

Spot trading can be done using two different kinds of financial instruments: spread bets and CFDs.

With spread betting, you’ll predict whether the corn price will increase or decrease and will stake an amount of pounds per point on that speculation. Your profit or loss will be the number of points multiplied by the bet size.

With CFD trading, you’re also speculating on how much the price of corn will rise or fall. However, here the difference between the time when you opened your position to when you closed it is what you can lose or gain as a profit.

Both spread bets and CFDs are leveraged trades, meaning you’ll open a position with a small percentage of the value of the trade to gain exposure to a larger position, off which profits or losses will be calculated. This means any loss or profit could substantially outweigh your deposit.

It’s also worth noting that you’ll pay no capital gains tax or stamp duty when spread betting spot markets, and CFD losses can be offset against profits for tax purposes.²

Corn futures

Futures trading is an agreement to exchange an underlying market for a fixed price, agreed upon in advance, at or by that futures contract’s expiry date.

As with spot trading, you can speculate on the future price of corn using spread bets and CFDs. This means you can go long or short and make a profit or loss whatever direction the corn market’s moving in – depending on how accurate your prediction is.

Corn stocks

If you’d rather invest in corn, you could buy shares in a publicly traded company associated with and exposed to corn – for example, an agricultural company. You’ll do this with our share dealing platform.

Investing in corn stocks means you’ll take ownership of those shares, rather than speculating on their price. This means you’ll only make a profit if the share price appreciates and you sell at that point.

You can also trade on corn stocks. This means speculating on that company’s share price instead of purchasing shares. You won’t own stocks in the company outright, meaning that you won’t get shareholder benefits such as dividends. However, you’ll also have to put up only a fraction of the cost of the share price to open a position, because you’ll be trading via spread bets and CFDs.

Here are a few of the biggest corn stocks:

• Bunge Ltd
• Andersons Inc
• Archer-Daniels-Midland Co

Corn ETPs

Exchange traded products (ETPs) are instruments which track the performance of corn through different asset classes. This can give you diversified, broad exposure to corn’s performance with a single position.

With us, you can either trade ETPs using spread bets and CFDs. With both, we offer two of the most popular corn ETPs:

• CORN.L WisdomTree Corn
• LCOR.L Wisdom Tree Corn 2x Daily Leverage

If you want to invest, you can do so via ETFs (exchange traded funds) in our share dealing platform. Most of these will have a broad agricultural scope, rather than tracking corn specifically, but will nevertheless offer some exposure. However, a significant advantage of some ETFs for UK investors is that they are UCITS compliant and/or have a Key Investor Document (KIDS).

Find out more about ETF UK regulations

With us, you can invest in two of the most popular of these ETFs:

• L&G All Commodities UCITS ETF
• SPAG.L iShares Agribusiness ETF

Whether trading with us via an ETP or investing with an ETF, remember that these are complex financial instruments, so ensure that you have a risk management plan in place and feel free to reach out to us with any questions.

What to know about the corn market

Corn is considered the most widely consumed grain on the planet. Versatile, hardy and easy to grow in various climates, it’s a staple in diets throughout many countries and cultures. However, it’s also an instrumental commodity in several industries.

The top producers of corn globally are the United States, Brazil, China, India and Argentina, but these are far from the only corn producers – and consumers – in the world.

As a commodity, corn has a storied and rich history. It’s believed to be one of the oldest speculated-upon commodities, after rice in Japan, and likely the oldest formally traded-upon soft commodity in the Western world. In the Victorian era, when America’s first-ever formal futures contract was created in 1851, it was for corn.

Uses of corn

As an incredibly popular grain, corn takes many forms. It’s used as livestock feed around the world but is eaten by people too – like ‘corn on the cob’ in the US.

Corn syrup – made from the distilled starch extracted from corn – is used as a sweetener in a multitude of consumable goods, from fast food to chocolate, soft drinks, condiments and more.

However, it’s the use of corn to make a chemical named ethanol that has many investors excited. Ethanol is used in ethyl alcohol for wines and other spirits, but it’s also used in gasoline.

As developed nations seek to phase out fossil fuels in the pursuit of more climate-friendly alternatives, the demand for ethanol (and corn with it) has risen and will likely increase even more. In fact, the EU even has specific mandates to use more ethanol in the fight to replace coal with other means of power generation.

What moves the price of corn?

The corn price is moved by many factors, both macroeconomic and agricultural.

Weather

One of the simplest drivers of the corn price is how plentiful corn crops have been in key corn-producing nations. Factors unlinked to the economy, such as rainfall, determine corn’s price by affecting its supply and demand.

If there’s a bumper crop of corn produced, there’s a plentiful supply in the market. However, if less corn is produced that year, the price of corn will rise because supply has diminished even though demand likely hasn’t.

Inflation

Even when nature’s winds don’t blow, macroeconomic headwinds can. When inflation rises, the cost of various things increases. These include food stuffs, fuels, alcohol and the price of importing goods into a country – all of which will drive up the price of corn.

In this way, investing or trading in corn can be a useful hedge against inflation.

Trade disruption factors

If import and export routes of major nations are disrupted for any reason (like trade sanctions or excessive losses due to piracy, for instance), that’ll affect all soft commodities’ prices.

An example of this would be the severe disruption of grain prices following the Russian invasion of the Ukraine, taking over its ports, in early 2022.

US dollar sentiment

Closely linked to inflation, the price of corn and other soft commodities tends to have an inverse relationship with the US dollar. When inflation weakens the dollar – a key driver in economies around the world – it also strengthens the price of things like corn, as demand for such staple items is likely to remain unchanged. This, too, makes corn a valuable hedge for many investors and traders.

The ‘China effect’

With such a huge population of consumers, anything that’s in demand for the country of China is likely to drive up that price around the world. This includes corn. Not only are Chinese people a huge percentage of the globe’s corn eaters, but they’re also likely to turn to it as an alternative fuel source.

The corn soybean spread

The ‘corn soybean spread’ is a term for the ratio used to describe the relationship between the corn price and the soybean price. Just like certain currencies are paired and compared against one another in forex, corn and soybeans are closely correlated in price – usually comparing corn bushels against soy bushels – to understand their relative values as soft commodities.

Is corn a good investment?

While no one can tell you which commodities, trades or investments will be good for your individual goals and portfolio, there are several things to consider to form your own opinion.

Below are some of the potential benefits and risks you can face when investing or trading corn.

Benefits of investing in or trading corn

• Because corn can be an effective hedge against inflation, it can be used as a risk management element to further diversify your portfolio or trading positions
• It’s also important to remember that corn is a commodity. Demand for commodities is generally less vulnerable to macroeconomic headwinds than factors such as share prices
• As a soft commodity, demand for corn doesn’t often decrease even if it’s supply or production does, making it resilient to many downturns

Risks of investing in or trading corn

• Although normal bear runs and other slow growth times tend to not affect soft commodities as much as other assets, serious disruptions to imports and exports do
• If you choose to invest in corn by buying shares in a corn-related company, be aware that this investment will be vulnerable to the same factors other share prices are. This includes that company’s revenue, management, production quotas and market sentiment
• Over the long term, the demand for ethanol (and therefore corn prices) could be affected by other clean energy alternatives to gasoline, which are often more reliant on hard commodities such as copper and lithium

Corn investing and trading summed up

• The corn price is moved by many factors, both macroeconomic and agricultural.
• Corn trading and investing are the two ways you can open a position on the price of this soft commodity
• Both methods give you the opportunity to make a profit from changes to corn prices without having to take possession of any physical kernels.
• If you decide to trade on the corn market, you can speculate on the spot (cash) or the future price of the commodity, or corn ETFs. If you decide to invest in corn, you can do so via corn stocks or ETFs
• To start trading or investing in corn with us, open a CFD trading, spread betting or share dealing account

Footnotes
¹ Short-selling is a strategy which poses inherent risk of loss. With leveraged trades, you could lose far more than your initial deposit when shorting unsuccessfully.
² Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.