Corn traders find 'middle ground' in Sep futures

CHICAGO: Investors and traders looking to enter the currently red hot corn market may be tempted to put their money in either July futures -- which represent what is remaining of last year's crop -- or in December futures that are tied to the crop to be planted this spring and which will have to navigate the upcoming growing season before coming to fruition.

But the fastest inflow of money lately has been into the September contract, which stands to become 'ground zero' in any fight over the very last bushels of last year's supplies in the event that the upcoming crop is hit by planting delays or damaging weather.

CORN BACK ON TRADER RADARS

After showing brief declines in late February and early March, corn prices and open interest (trader positions that have yet to be closed out) have increased again lately amid fresh concerns over crop shortages and speculation that the upcoming planting season may encounter weather hurdles that could prevent tight supplies from being replenished.

Indeed, as can be seen in the below graphic, both prices and the level of market participation have now hit all-time highs in 2011 as corn features prominently in commodity portfolios.

And the most popular destinations for recent entrants have been either in contracts that reflect the diminishing remnants of last year's crop (represented by May and July futures) or into the critically important 'new' crop (December futures).

Combined open interest in these contracts account for more than 80 percent of all open positions in the corn futures market.

But as popular as those contracts have been of late among the majority of corn traders, September futures have actually shown the fastest increases in open positions lately thanks to that contract's unique position as a representative of both the very last supplies of the prior year's crop as well as potentially the first bushels that emerge from early harvest of the new crop.

SEPTEMBER'S STEALTHY GROWTH

Although open interest in September corn futures remains less than 25 percent of that in July futures at just over 100,000 contracts, it has risen at a faster clip than open positions in either July or December futures since in the beginning of 2011, and more so in recent weeks.

Indeed, since the beginning of the year, September futures open interest has increased by more than 140 percent, compared with a 92 percent rise in July futures and a 51 percent increase in December.

Since March 1, September open interest has expanded by more than 60 percent, compared with a 1.5 percent rise in July futures and 15 percent rise in December futures over the same period.

The faster growth rate in September futures reflects the presence of both value-seeking traders -- as September futures have lagged July and May prices in recent weeks -- as well as the growing number of traders who expect there to be shortages of corn during that time slot which could propel September corn prices higher in search of any remaining available grain.

Concerns that spring floods across the Midwest could lead to planting delays are also spurring interest in September futures, as a push back in plantings would lead to a similar delay in harvest which again could help September prices accrue a premium over December futures as an abundance of freshly harvested corn should be available by the time the December contract enters its delivery phase.

In all, the increases in total corn market open interest lately reflect a rise in overall interest in participating in the corn market in recent weeks. But the faster growth rate in positions tied to September futures than seen in July or December futures suggests a growing number of traders expect that time slot to play a crucial role in the 2011 corn price story.

Those investors and traders currently torn between allocating positions to either the 'old' or 'new' corn crops may find the September contract to offer a happy middle ground between the two.