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Level: Beginner

Contributed By: CME Group

Today’s agriculture markets are highly complex. Agricultural grain futures and options provide the tools the industry needs to manage risk and help put food on the table for a growing global population. Gain an understanding of the fundamentals that affect supply and demand in the grain and oilseed markets. Find out how futures and options provide critical price discovery and risk management roles for a variety of market participants, from farmers, ranchers, processors, distributors, wholesalers, retailers, traders and more. Discover the ways these contracts can fit into your portfolio.

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Agricultural contracts were the first futures traded in the United States. In 1848, farmers and merchants came to Chicago to set a price on grains, bringing life to the commodities markets. Today, the agricultural market is global; accessible electronically almost anywhere and used by individuals, farmers, commercial firms, large corporate companies and government institutions.

In this module we will take a look at the various types of Agricultural options available and the features and benefits that make them valuable tools for hedgers and traders.

Grains and Oilseeds are renewable resources with continuously fluctuating global supplies that are largely determined by crop production cycles, weather and ongoing shifts in global demand.

This module provides an overview of the Corn cash market, including its production, transportation and uses.

Soybean futures began trading at the Chicago Board of Trade in 1932, followed by futures on its byproducts: Soybean Oil in 1946 and Soybean Meal in 1947. As the world’s largest source of animal protein feed, and the second largest source of vegetable oil, soybeans are one of the most important crops around the globe. Soybeans and soybean byproducts are the most-traded agricultural commodities, comprising more than 10% of the total value of the global agriculture trade.

This module provides an overview of the U.S. Wheat cash market, including its production, uses and transportation.

As with all goods and services, the price of grain and oilseed products is determined by the intersection of supply and demand, which are affected by many factors.

Seasonality is an important concept for those looking to trade Agricultural products. The regular patterns of supply and demand displayed by these markets at specific times of the year should be key considerations in making trading decisions.

The futures markets for Grains and Oilseeds indicate the prices for those commodities that are discovered through buying and selling at the exchange, representing the culmination of the forces of supply and demand.

Market participants who buy or sell physical grains and oilseeds are aware that the cash price in their local area, or what their supplier quotes for a given commodity, usually differs from the price that is quoted in the futures market.

One of the primary functions of the agricultural futures and options markets, the very foundation of this industry, is hedging, the management of the price risks naturally inherent in the purchase or sale of commodities.

How do growers, warehouses, and other market participants efficiently allocate a crop produced one time per year, but consumed and utilized through the entire year?

Learn about the various types of agricultural spreads typically traded today, including the features that make them valuable strategies for both hedgers and speculators alike.

Spread trading, which involves simultaneously buying and selling two different contracts, is a widespread strategy in the grain and oilseed markets. One of the most common spread trades in the soybean market is the crush spread.

Grains or Oilseeds futures contracts represent a commitment to make or take delivery of the commodity at some point in the future. To avoid delivery, you need to offset or roll forward your futures positions before a contract goes into its delivery cycle. Most futures positions are offset or rolled forward, and only a small percentage of them are actually held for delivery.

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