Corn Futures Strategy (Backtest And Example)

Last Updated on December 11, 2022

Agriculture futures offer a vast array of hedging and speculative opportunities, and Corn is one of the most highly traded commodities globally. Also known as maize, corn is widely cultivated in countless varieties throughout the world. Corn futures trading requires in-depth knowledge of the commodity, as well as a thoroughly researched futures strategy. So, what is a corn futures strategy?

A corn futures strategy refers to the methodologies and techniques you can use to trade corn futures contracts profitably and would include technical and fundamental analyses of the corn futures market.

Corn futures are futures contracts with corn as the underlying asset. Such contracts represent an agreement to receive or deliver the specified quantity of corn on a future date, at a pre-agreed price. The contract trades on the CME Globex platform and is settled by the physical delivery of the specified quantity and quality of corn.

In this post, we answer some questions about the corn futures strategy and we provide you with a couple of backtests.

What are corn futures?

Corn futures are futures contracts with corn as the underlying asset. Such contracts represent an agreement to receive or deliver the specified quantity of corn on a future date, at a pre-agreed price. The contract trades on the CME Globex platform and is settled by the physical delivery of the specified quantity and quality of corn at the expiration of the contract — the seller of the corn futures contract delivers the specified quantity and quality of corn to the buyer through the exchange. In other words, it’s physical delivery.

Traders who just want to speculate on the corn price without getting involved in the delivery can close out their trades before expiry or roll over their contracts. If not, you might face a problem! However, most retail brokers close your position automatically before expiry to avoid such situations.

Commodity speculators love to trade corn because of its liquidity and the opportunities to take advantage of price fluctuations.

What is a corn futures strategy?

A corn futures strategy refers to the methodologies and techniques you can use to trade the contract profitably and would include technical and fundamental analyses of the corn futures market. To succeed in trading the corn futures market, you will need a robust trading strategy that offers precise entry and exit signals. In addition, your corn futures strategy must include techniques for position sizing, risk management, and so on.

Corn macro numbers, corn strategies, and backtests

The corn market is, of course, heavily dependent on the corn yield and harvest. According to information available on the web, the World Agricultural Supply and Demand Estimate (WASDE) publishes an estimated crop yield of corn and this obviously makes a huge impact on the price of corn. From our understanding, the organization makes a pretty good forecast of the crops.

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Backtested trading strategies

A simple trading model can be estimated based on these numbers and compared to forecasts and estimations. Such a model is published in an article called Profitable Trading Strategy From Gro Intelligence US Corn Yield Model from 2018. The article includes a backtest. Below is the result of their trading model:

Corn futures backtest

Corn futures strategy backtest

The first thing to say about corn is that, together with all commodities, they are hard to trade, at least compared to stocks. After 20 years of trading and backtesting, we have yet to find strategies that last for a long time and are reasonably consistent.

That said, we believe the most low-hanging fruit in the commodity sector is seasonal trading patterns. Let’s start by looking at a seasonal trading pattern in corn futures:

Corn futures strategy backtest no. 1:

Further below in the article, you find a chart that displays the seasonal tendencies for corn. Based on that chart we made a strategy that is almost constantly invested long or short. The trading rules and settings are like this:

  • We go long corn futures at the close of March.
  • We close our long position and sell short at the close of May.
  • We cover our short position and go long at the close of September.
  • We close our long position and sell short at the close of February.

The trading statistics and historical performance look like this:

Corn futures trading strategy backtest

(The backtest above is not based on the futures contract, but assumes no leverage – like an equity backtest.)

Even with a somewhat optimized trading strategy, we witness a max drawdown of 70%! The reason for that is a short trade in 2012 that caused a lot of pain before it turned around and exited at a small loss. We believe very few traders could tolerate such a loss.

Corn futures strategy backtest no. 2:

The second backtest is also a seasonal trading strategy with an added momentum filter (long trade). A pretty simple strategy but it has turned out to be useful for three decades.

The equity curve looks like this:

Corn futures trading strategy

The average per trade is 1.13% (unleveraged) spread out over 175 trades. The holding period is 6 days and you are invested 13% of the time. The strategy has a very low correlation to the stock market. Also worth noting is that the worst year only had a loss of 7.9%. It seems to be a good risk and reward.

The strategy is available for our subscribers to the following product (click the green banner below):

More trading strategies

We started this blog as long back as 2012 and since then we have written hundreds of articles (over 800, actually). Among the articles, we have included articles with trading rules, data-driven statistics, probabilities, and historical performance. The main idea has always been: Does it work? We are not using anecdotal evidence, all is based on strict backtesting with trading rules.

Please see our complete list of trading systems. The strategies can help you copy some of the ideas and logic that institutional traders use.

We have compiled the Amibroker code and logic in plain English for all these strategies (plain English is for backtesting in Python). If you subscribe, you’ll get the code for the latter strategy (plus over 150 other ideas).

For a list of the strategies we have made please click on the green banner:

These strategies must not be misunderstood for the premium strategies that we charge a fee for:

What is the seasonality of Corn futures?

When it comes to financial trading, seasonality refers to the tendency of an asset’s price to move in a fairly predictable way during certain periods of the year. The periods here may refer to the months of the year or the four seasons (winter, spring, summer, and fall) of the year.

Corn futures have been noted to perform better during the months of January, February, April, May, October, November, and December than during the months of July, August, and September (Summer). See the chart below:

Corn futures strategy
Source: Equity Clock

What moves the corn market What affects the corn market the most?

The factors that move the corn market include weather conditions in the major growing regions and key corn production and supply reports, such as the USDA World Agricultural Supply and Demand Estimate (WASDE) Report, the USDA Prospective Planting Report, Grain Stocks Reports, and Crop Production Reports. Another factor is the demand from China.

However, with commodities, you can be sure that random macro numbers are “always” making a huge impact.

How are corn futures traded?

Corn futures contracts are traded on the CME Group’s futures exchange in full and mini-contract sizes. The contract trades from Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT the next day, with a one-hour break at the end of each day. Trading on CME’s Globex electronic platform, the contract can be traded from anywhere.

There are 9 monthly contracts for March, May, and September, and 8 monthly contracts for July and December listed annually after the termination of trading in the December contract of the current year. The full contract size is 5,000 bushels of corn while the mini contract size is 1,000 bushels of corn.

Settlement is by physical delivery method, and trading terminates on the business day prior to the 15th day of the contract month.

How do you start trading corn futures?

You trade the contract through a futures broker, which grants you access to the CME Group’s exchange where corn futures contracts are traded. To start trading, you have to register with a futures broker and fund your account. It may also be possible to register directly with the Globex trading platform but you need a broker to clear your trades.

We use Interactive Brokers and Tradestation as brokers. Please read our Interactive Brokers review.

CFDs are an alternative to futures

If you just want to speculate on price movements, an alternative is to trade the CFD of futures contracts via an online CFD broker, such as IG. With a CFD contract, you are in an agreement with the broker to exchange the price difference between the opening and closing of a trade. CFDs enable you to trade price fluctuations without having to worry about the rigors of asset delivery in direct futures trading.

Please keep in mind that most CFD traders lose money.

What is corn trading at?

Corn futures were trading at 663’2 USX (US cents) as of November 24, 2022.

As the price changes from time to time, what is quoted here may not be the price it would be trading when you are reading this post. To get the real-time price on the CME platform or directly from TradingView, click either of those links. Corn futures er very volatile!

What’s corn futures hour?

Corn futures trade on the CME Globex electronic platform from Sundays to Fridays; the trading hours begin from 5:00 p.m. to 4:00 p.m. CT the next day. There is a one-hour break before the start of the next trading day (4:00 p.m. – 5:00 p.m. CT) from Monday to Thursday for maintenance.

For CME ClearPort, the schedule is Sunday – Friday, 5:00 pm – 5:15 pm CT, with no reporting Monday – Thursday from 5:45 p.m. – 6:00 p.m. CT.

For Trading at Settlement (TAS), the schedule is Sunday – Friday 7:00 p.m. – 7:45 a.m., and Monday – Friday 8:30 a.m. – 1:15 p.m. CT.

Where can I find trading charts?

Charts can be found on any trading platform, provided it offers chart services. If your platform does offer charts, you can subscribe to trading charts via a third-party platform, such as MultiCharts.

Alternatively, you can also use TradingView, which even offers free access to charts of different instruments. However, if you want to connect to your broker, you have to subscribe to the Pro services. You can also access the TradingView chart via the CME platform.

What are the trading symbols for corn futures?

There are two contract specifications for corn futures on the CME’s Globex platform: the full contract and the micro contract. The full contract’s trading symbol is ZCH, while the micro contract’s symbol is XCH. The product code on CME ClearPort is C for the full contract and YC for the mini contract.

What is the specification for a corn futures contract?

One full contract of corn futures is equivalent to 5,000 bushels of corn, while one mini contract is equivalent to 1,000 bushels of corn or 25 Metric Tons. The price quotation is in U.S. cents per bushel. The minimum price fluctuation of the full contract is 1/4 of one cent (0.0025) per bushel = $12.50; that of the mini contract is 1/8 cent (0.00125) per bushel = $1.25.

For both contract sizes, there are 9 monthly contracts for March, May, and September, and 8 monthly contracts for Jul and Dec listed annually after the termination of trading in the December contract of the current year. Settlement is by delivery, and trading terminates on the business day prior to the 15th day of the contract month.

Why should you start trading corn futures?

Trading corn futures allows you to speculate on the fluctuations in corn prices. It also provides the opportunity to use a different trading strategy, such as arbitrage trading between two different exchanges or platforms.

For corn farmers and other industry stakeholders, corn futures offers them the ability to hedge their risks in the corn market.

What is the contract size?

One full contract of corn futures is equivalent to 5,000 bushels of corn, while a mini contract is equivalent to 1,000 bushels of corn. The price of a bushel of corn as of writing is 663’2 cents or $6.632. So, the USD worth of a full contract of corn is 5,000 x $6.632 = $33,160. That of the mini contract would be 1,000 x $6.632 = $6,632.

What is the tick size?

The tick size of one full contract of corn futures is $12.50 per tick per contract, while the tick size of the mini contract is $1.25 per tick per contract.

What is the minimum price fluctuation for corn futures?

The minimum price fluctuation of the full contract is 1/4 of one cent (0.0025) per bushel, which is equivalent to $12.50;

That of the mini contract is 1/8 cent (0.00125) per bushel, which is equivalent to $1.25.

Are there any ETFs?

Yes, there is one corn futures ETF that trades on the US stock exchange — Teucrium Corn Fund (CORN). The fund offers exposure to one of the world’s most important agricultural commodities — corn. CORN diversifies across multiple maturities to mitigate or potentially eliminate the adverse impact of contango, which makes it useful as an inflation hedge.

What factors affect corn prices?

These are some of the factors that affect corn prices.

  • Weather conditions: Adverse weather conditions can also affect corn production.
  • Seasonality: Generally, corn supply tends to decrease in the spring and increase after the harvest in the fall.
  • Export demand from China and others: Growth in the global population may increase demand for corn.
  • Projected crop size: This is captured in the USDA report, which shows the expected supply of corn.
  • Demand for ethanol: The U.S. government subsidizes ethanol production; a change in this government policy could affect the demand for corn.

What is the all-time high for corn futures?

According to over 60-year data from MacroTrends, the all-time high for corn futures is 831’25 cents ($8.3125), which it achieved in 2012. But the corn futures chart on TradingView started in 2019, and the highest it attained since then is 766’2 cents (S7.662) in May 2022.

What are the biggest risks in trading corn futures?

The biggest risk when trading corn futures comes from adverse price movement, which can be disastrous when overleveraged. As a leveraged instrument, corn futures can give oversized losses because the losses are calculated using the actual value of the contract size traded, not the margin deposited by the trader. With a 20x leverage, a 5% negative movement would wipe out your account. Thus, be very careful when you backtest futures trading strategies!

What is the settlement method?

Physical delivery. Most retail brokers automatically close your position before expiry to avoid physical delivery.

What is the settlement procedure?

There is a normal daily settlement where CME Group staff determines the daily settlements in CBOT Corn (ZC) futures on trading activity on CME Globex between 13:14:00 and 13:15:00 Central Time (CT), the settlement period. On contract expiry, the corn is physically delivered by the seller under the supervision of CME.

What is the block minimum for corn futures?

RTH – 300

ETH/ATH – 150

What is the difference between corn futures and the CFD instrument for corn?

Corn futures are standardized contracts that trade on a regulated futures exchange (CME Group), whereas corn CFDs, which are offered by online CFD brokers, only try to track the price movement of the corn futures. With a CFD, you are in contract with the broker that offers it, and you are at its mercy. Nonetheless, futures have expiry dates and may involve the delivery of corns, but CFDs don’t come with those issues.

Which instrument is the same as corn futures

Corn CFDs; they are offered by online brokers, such as IG. And as mentioned above, there is an ETF with the ticker code CORN.

What are some important dates for this market?

Some important dates in the corn futures market include:

  • 1848 when the Chicago Board of Trade (CBOT) was formed
  • March 13, 1851, when the first corn forward contract was traded.
  • 1865 when standardized futures contracts were introduced
  • 2012 when it reached its current all-time high of $8.3125

What is the highest corn has ever been its all-time high?

According to 62-year data from MacroTrends, the highest corn futures has ever reached was 831’25 cents ($8.3125), which it achieved in 2012.

What is the lowest corn has ever been its all-time low?

According to 62-year data from MacroTrends, the lowest corn futures has ever traded was 100’7 cents ($1.007) in 1960.

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