The popularity of trading on commodity futures markets grew steadily over the 20th century. In more recent times, the rate of growth in volume traded at futures markets increased significantly. Leading up to 2008, U.S. commodity futures markets continually set new record levels of annual volume. Two of those markets that lead the U.S. in futures trading are corn and crude oil. There is a significant aspect that brings people to these markets.
Both the corn and oil markets are extremely important to the U.S. economy, but for very different reasons. Corn is one of the largest domestically produced goods. U.S. farmers grew 331.2 million metric tons (MMT) of the 793 MMT produced in the world in 2007/08. With 42% of the world’s production, the U.S. is the largest exporter of wheat on the global market. They accounted for 62%, or 60.8 MMT of the world’s 98.2 of global exports. Market participants use the corn commodity futures markets in a number of ways. Foreign importers and domestic exporters use these exchanges to trade corn intended for destinations around the world. The U.S. is also the largest consumer of corn at 226.7 MMT or 34% of the global market share. Farmers can sell their product on U.S. commodity futures markets and ship it around the nation.
Oil is also a large part of the domestic economy, but from the opposite side of the trade. With nearly one in every four barrels of world consumption, the U.S. is by far the largest global consumer of oil. The next closest country is China with less than 9% of global figures. 2/3, or 4.9 billion barrels of the U.S.’ 7.55 billion barrels of oil consumption comes from imports. That makes it the largest part of the U.S. trade deficit by a significant portion. Price changes in the crude oil market directly effect the macroeconomic implications associated with this notion. A large percentage of those imports are secured through U.S. commodity futures markets. These domestic exchanges are crucial to the petroleum markets on two fronts. Like corn, exporters and importers can use the crude oil market to conduct their business. These importers are typically refiners and other middle users. Crude oil is then refined into products, possibly by the initial importers, and then resold on other commodities futures markets. The other products include: reformulated gasoline, heating oil, propane and diesel fuel.
The fact that these contracts are popular traded commodity futures markets is because of their importance to the domestic economy. This brings a ton of commercial market interest. For hedgers to conduct business, they require speculators to be counterparty in the risk transfer. These speculators are happy to enter and participate in the market because the large amount of opportunity and volume traded. This results in very liquid markets which is an aspect valued by participants of commodity futures exchanges.
(EIA: Petroleum: Products Supplied)
(EIA: Petroleum: U.S. Imports by Country of Origin)
(USDA FAS- World Corn and Barley: Supply and Demand)
(USDA FAS- World Corn Trade)
(USDA FAS- World Corn Production, Consumption, and Stocks)
Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.
