It’s always beneficial to understand a broader perspective. And it can be easy to only focus on grain prices in commodity markets. For most of us, that’s Corn and Soybean prices. But each category of internationally traded commodities are intertwined with each other. Some more than most…
For instance, Corn and Soybeans tend to have a strong positive correlation with each other. That means their contract prices tend to move in the same general direction. Outside the Grains, Ethanol and Crude Oil tend to have this same correlation… as Oil prices rise, Ethanol often rises with it. This is because Ethanol is blended with gasoline in greater quantities as demand rises.
Let’s start with a definition. Commodities are raw materials with intrinsic value that can be bought and sold in physical quantities. Here we’re outlining commodities that have derivative financial contracts that can also be bought or sold to hedge price risk. Derivatives are called that because they’re “derived” from the actual price of buying and selling the physical good. We often here this called “Paper Trading” because the trades will most likely not result in physical delivery of goods. It’s just a contract on paper…
Below is a list of the different sectors of internationally traded commodities. It’s the family tree of traded financial commodities. We’ve divided the list by the four major commodity categories, their main futures contracts, and derivative products (where applicable).
- Ethanol (See: Energies)
- Rough Rice
- Soybean Crush:
- Soybean Oil
- Soybean Meal
- Soybean Crush:
- Canola Oil
- Palm Kernel
- Palm Oil
- Rapeseed Oil
- Sunflower Oil
- Feeder Cattle
- Live Cattle
- Lean Hogs
- Orange Juice
- EnergiesWTI Crude OilBrent CrudeOil Crack:Heating OilRBOB (Gasoline)Natural GasPropaneEthanol
- Forest ProductsLumberHardwood PulpSoftwood Pulp
Each of these commodity contracts and their derivatives are traded on public commodity exchange markets. You can find out more about the different market participants in our Market Hierarchies video. That discusses how trade flow and risk transfer from exchanges, to Clearing Firms, Introducers, Brokers, Grain Buyers and Merchandisers, Grain Elevators, and Farmers.
For our purposes here, it just helps to know who some of the Exchanges are that match buyers and sellers as they trade (or “exchange”) contracts. In the grain markets today, we often talk about “the Board price”. This refers to the Chicago Board of Trade where Corn and Soybean futures contracts are traded.
Here is a list of some of the international commodity markets that offer contracts for the above financial derivatives:
- Chicago Board of Trade (CBOT)
- Chicago Mercantile Exchange (CME)
- Dubai Mercantile Exchange (DME)
- London International Financial Futures and Options Exchange (LIFFE)
- London Metal Exchange (LME)
- New York Mercantile Exchange (NYMEX)
- Kansas City Board of Trade (KCBT)
- New York Board of Trade (NYBOT)
- Minneapolis Grain Exchange (MGEX)
- Dalian Commodity Exchange (DCE)
****Talk about the ABCDs, coops, ethanol plants, etc.***
Major Commodity Trading Companies
- Archer Daniels Midland (ADM)
- Bunge Limited
- COFCO Group (China’s state trading organization)
- Louis Dreyfus Group (LD)
We need a general understanding of these commodity contracts and the Exchanges that trade them. That’s a great base for starting to understand more advance hedging and grain marketing strategies. It also helps us make sense of the macro-economy and how different Market Influences can affect grain prices today and in the future.