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The Week Ahead – The Basics of Trading the Grains by Joe Rios

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On the last day of trade this week, Corn plunged sparking a slump in Soybeans and Wheat, after the U.S. government said domestic inventories were bigger than analysts forecast and that farmers will plant the most since 1936. As a result Corn futures tumbled by the exchanges $.40 limit, -5.4%. Soybean futures dropped -3.1% while Wheat futures fell -6.9%. Energy was the outperforming sector for the week with Crude Oil gaining 3.8% (bullish RQ Ranking) and Natural Gas rising 2.4%. In the week ahead Thursday is busy with scheduled economic data releases including UK rate statement, Spanish 10 year bond auction, BOJ press conference, ECB press conference and Fed Chairman Bernanke speaks.

The Basics of Trading the Grains

Trading the grains is a special and exciting market to trade. If you’re a daytrader then you will like the intraday volatility the grain markets offer. The grains are a true momentum market therefore breakouts and breakdowns tend to be a favorite among quant traders. The pit session is open from 10:30 AM to 2:15 PM ET. In other words when the currency and financial markets slow down in volume, the heavy volume in the grains begin. The open is where the greatest volume and aggressive price swings occur.

The tick increments for corn, soybeans and wheat are $12.50 per quarter-point kicks or $50 per point. So they are the same for the S&P mini futures. The intraday in overnight margins are also very low for corn in just a little bit higher for soybeans and wheat.

Corn and soybeans are the most active during the summer months, as they go through their critical pollination faces during July and August. Weather is an important driver of prices during the summer months. Extreme heat can cause damage for corn and soybeans. Rain is usually very beneficial for crops however it can also cause damage. Rain can cause problems for farmers by disrupting the planting or harvest process, but damage can also occur from excessive rains. A slight change in a weather forecast can ignite strong price rallies and  just like traders witnessed this past  Friday, inventories can send prices in a free fall.  To learn more about trading the grains with the Rios Quant technology, write me at joegrios@gmail.com or support@riosquant.com.

 

corn

 

Intraday 30 minute Corn chart minutes before  the U.S. government said domestic inventories were bigger than analysts forecast and that farmers will plant the most since 1936.

corn2

Same Intraday 30 minute corn chart showing price action following report release.

 

 
 
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