ECON 337:
Agricultural Marketing
Lee Schulz
Assistant Professor
lschulz@iastate.edu
515-294-3356
Chad Hart
Associate Professor
chart@iastate.edu
515-294-9911
Soybean Futures
Form
5,000 bushels
No. 2 Yellow Soybeans (at price), No. 1
Yellow soybeans (at 6 cents over price), and
No. 3 Yellow Soybeans (at 6 cents under
price)
Time
Contract months: Sept, Nov, Jan, Mar, May,
July, and August
Source: CME Group
Soybean Futures
Partial listing of delivery points
Source: CME Group Rulebook
Delivery Points
Corn
Soybeans
Wheat
Source: Irwin, Garcia, Good, and Kunda, 2009
Marketing and Outlook Research Report 2009-02
Futures Contracts
 No physical exchange takes place when the
contract is traded (no actual commodity moves)
 Payment is based on the price established when
the contract was initially traded (prices can and
will change before delivery is taken)
 Deliveries can be made when the contract
expires or the offsetting futures position must be
taken to settle up
 Deliveries occur on less than 5 percent of the traded
contracts
Market Positions
You can either buy or sell initially to open a
position in the futures market
“Make” a promise to make or take delivery
Do the opposite to close the position at a
later date
“Offset” the promise (and no commodity changes
hands)
Trader may also hold the position until
expiration and make or take physical delivery
of the commodity
Trading Futures Contracts
All trades through a licensed broker
Brokerage house has a “seat” at the
exchange and is allowed to trade
Represented “on the floor” to exercise trade
Local broker to initiate transaction and
manage account with client
Full service and discount brokers
CME Group
http://www.cmegroup.com/
Open, High, Low, Last Price
Settlement Price
Volume
Open Interest
Daily Limits
Terms and Definitions
Basis
The difference between the spot or cash
price and the futures price of the same or a
related commodity.
Bear
Someone that thinks the price will decline
Bull
Someone that thinks the price will increase
Cash vs. Futures Prices
Iowa Corn in 2013
The gap between the
lines is the basis.
2013 Basis for Iowa Corn
Terms and Definitions
Clearing House
The division of the futures exchange through
which all trades made must be confirmed,
matched and settled each day until offset or
delivered.
Commission
For futures contracts, the one-time fee
charged by a broker to cover the trades you
make to open and close each position.
Terms and Definitions
Long position
A position in which the trader has bought a
futures contract that does not offset a
previously established short position.
Short position
A position in which the trader has sold a
futures contract that does not offset a
previously established long position.
Going Short
Sold Dec. 2014 Corn @ $4.55
What type of trader (bull or bear) would go short?
What events would send prices in a favorable direction?
Going Long
What type of trader (bull or bear) would go long?
Bought Nov. 2014 Soybeans @ $11.20
What events would send prices in a favorable direction?
Margin Accounts
A margin account is an account that traders maintain
in the market to ensure contract performance. There
are minimum limits on the size of the account.
Crop
Corn
Soybeans
Lean Hogs
Live Cattle
Trader Type
Hedger/Speculator
Hedger/Speculator
Hedger/Speculator
Hedger/Speculator
Initial
$2,363
$3,915
$1,350
$1,013
Maintenance
$1,750
$2,900
$1,000
$ 750
To trade, you must create a margin account with at
least the “Initial” amount and maintain at least the
“Maintenance” amount in the account at the end of
each trading day.
Margin Calls
Margin accounts are rebalanced each day
Depending on the value of futures
Settlement price
If your futures are losing value, money is taken out
of the margin account to cover the loss
If the account value falls below the “Maintenance”
level, you receive a margin call (a call to put
additional money in your margin account) and the
balance is brought back up to the Initial amount
Margin Example
Let’s say I went short on Mar. 2014 corn
$4.345/bushel on Jan. 13
Along with selling a corn futures contract, I have to
establish a margin account and deposit $2,363 in it
On Jan. 17, the Mar. 2014 corn futures price moved
to $4.24/bushel
Since I’ll be buying the futures contract later, this
price move is in my favor
Margin Example
I gained 10.5 cents per bushel and since the contract
is for 5,000 bushels, that’s a gain of $525
At the end of the day (Jan. 17), $525 is deposited
into my margin account, raising the account balance to
$2,888
Since $2,888 is greater than the “Maintenance” level,
I will not receive a margin call
Margin Example #2
Let’s say, instead of going short, I went long on May
2014 corn
$4.4775/bushel on Dec. 11
Along with buying a corn futures contract, I have to
establish a margin account and deposit $2,363 in it
On Jan. 17, the May 2014 corn futures price moved
to $4.3175/bushel
Since I’ll be selling back the futures contract later,
this price move is not in my favor
Margin Example #2
I lost 16 cents per bushel and since the contract is
for 5,000 bushels, that’s a loss of $800
At the end of the day (Jan. 17), $800 is to be taken
from my margin account, lowering the account balance
to $1,563
Since $1,563 is less than the “Maintenance” level, I
will receive a margin call and be asked to deposit $800
more into the account or to close out the futures
position
The $800 brings the account balance back up to
the initial requirement
Margin Example – Going Short
Date
Price
Gain
Margin
Call
Account
Balance
$2,363
1/10/14
$4.4075
1/13/14
$4.425
-$87.50
$2,275.50
1/14/14
$4.395
+$150
$2,425.50
1/15/14
$4.335
+$300
$2,725.50
1/16/14
$4.355
-$100
$2,625.50
1/17/14
$4.3175 +$187.50
$2,813
Margin Example – Going Long
Date
Price
Gain
Margin
Call
Account
Balance
$2,363
1/10/14
$4.4075
1/13/14
$4.425
+$87.50
$2,450.50
1/14/14
$4.395
-$150
$2,300.50
1/15/14
$4.335
-$300
$2,000.50
1/16/14
$4.355
+$100
$2,100.50
1/17/14
$4.3175
-$187.50
$1,913
Class web site:
http://www.econ.iastate.edu/~chart/Classes/econ337/
Spring2014/
See you at lab, Heady 68!