Meet Mr. Grains

By Holter, James T. | Modern Trader, January 1997 | Go to article overview

Meet Mr. Grains

Holter, James T., Modern Trader

Whether your forte is fundamental or technical analysis, knowing exactly what you're trading is important. Here, we examine the basics of the Chicago Board of Trade's (CBOT) grain futures and what fundamental factors affect them.

Editor's note: In the series, we'll tackle the fundamental and technical side of trading on alternate months. Every other month we'll spotlight a market and explain its fundamentals, and then test traditional indicators and explain their use. Taken together, these articles will provide any beginning trader with the first step toward understanding the futures markets.

The roots of the first grain futures born in Chicago Jan. 2, 1877, stretch over three continents. The Chinese began using soybeans in 3000 B.C. Native Americans embraced corn as early as 5000 B.C. And 9,000 years ago, Mediterranean countries began producing wheat.

Today we use these commodities in everything from gas tanks to diapers. Without the liquidity of a futures market, achieving the required price discovery for such flexible usage would be like wrestling the stalks of wheat from the statue of Ceres atop the CBOT.

Futures provide this liquidity by matching, and complimenting, the cash market. The CBOT's corn futures, for example, call for the delivery of #2 yellow corn with a maximum moisture content of 15%. Sellers can deliver # 1 yellow corn at a 1 1/2[cents] per bu. premium or #3 yellow corn at a 1 1/2[cents] per bu. discount.

"Because 15% [moisture content] is now the merchantable grade, we switched the contract so that it mimics the cash market," says Glenn Hollander, CBOT member and partner with Hollander & Feuerhaken in Chicago.

Delivery points are just as inherent to the viability of the futures, but setting the right points isn't as simple as copying the cash market, adds Diane Klemme, director of grains for Grain Service Corp. in Atlanta.

"The delivery points must correspond with the cash market, but they can't be viewed as perfect substitutes either. . .because then all you have is just another cash market," she says.

Whether you're a fundamental or technical trader, understanding how grain prices react to the real world is vital, says Carl Zapffe, grain trader and CBOT member. At the most, it's philosophically pleasing - your hard earned dollars shouldn't be dumped into a concept you don't understand. At the least, it's financially prudent: "Having fundamental data can alert a trader to a broker who might be talking them into doing trades not in their best interest or over trade them based on technical signals," Zapffe says.

Buying into grain trading, as compared to a managed fund, for example, is the same as deciding to lease or buy a car, Zapffe says. Traders should know the details of what they're trading before they make a commitment. The largest buyers into the markets sure do.

Market makers As the Sumitomo incident showed for copper, often the physical players can be fundamental factors themselves. What large processors do with their massive stocks surely affects the markets.

The Commodity Futures Trading Commission (CFTC) does provide a window into large player positions with its Commitments of Traders (COT) reports. COT reports list recent open interest by large hedgers, large traders and small traders, showing how many in each category are long or short. The CFTC releases COT reports every other Friday, but the data is broken down by week.

Numerous interpretations exist for COT reports (see "Making A Commitment," Futures, November 1996). These basically revolve around the idea that it's the large hedgers who know the market best. But Hollander warns COT reports come out after the fact and shouldn't be relied on solely for information. Sources on the trading floor (such as your broker) have a much more timely idea about the positions of major players, he says.

Who the international buyers and sellers are depends on the grain. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Cite this article

Cited article

Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Meet Mr. Grains


Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

    New feature

    It is estimated that 1 in 10 people have dyslexia, and in an effort to make Questia easier to use for those people, we have added a new choice of font to the Reader. That font is called OpenDyslexic, and has been designed to help with some of the symptoms of dyslexia. For more information on this font, please visit

    To use OpenDyslexic, choose it from the Typeface list in Font settings.

    OK, got it!

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search


    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.