Should You Buy CORN?

June 14, 2010

 

And from whom are they buying? Iowa.

 

Chinese corn

 

Here, the more volatile red line represents spot corn in Iowa, while the slowly growing green line represents spot corn in Dalian, China. It's easy to see why China is buying now. The two prices are nearly uncorrelated, with U.S. corn headed to test lows, while Chinese corn hits all-time highs.

 

Contango In The CORN Field

Of course, we all know we can't actually invest in spot corn, at least, not without buying dry-bulk ships and warehouses. What we could buy is the corn futures contract. But that contract lives in contango most of the time, and the monthly roll would generally bleed assets from your position.

To illustrate, here's what life looked like as a corn futures investor vs. a spot seller over the last year.

 

Corn Spot vs. Futures

 

The actual price of corn is "only" down 23 percent. But a futures holder (represented here by the S&P-GSCI Corn Index), would be down almost 31 percent.

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