Financial Information: The History Of Grain Commodities

The regulation of grain commodities started out over a hundred and fifty years ago. Find out how it began and what it does by reading this informative article!

The Chicago Board of Trade (CBOT) has been in business for over a hundred and fifty years. It was originally organized to help generalize grain trading. The most important thing that it did was to institute standardized agreements. These agreements are known as future contracts. A futures contract is an agreement to buy or sell a grain commodity as the name implies, in the future. The grain commodities include Barley (WCE), Canola, (CBOT), Corn (CBOT), Corn (MIDAM), Flaxseed (WCE), Oats (CBOT), Feed Peas (WCE), Rough Rice (CBOT), Soybeans (CBOT), Soybeans (MIDAM), Soybean Meal (CBOT), Soybean Oil (CBOT), Wheat (CBOT), Wheat Feed (WCE), and Wheat (MIDAM). The items in parenthesis are the markets that the grains are traded on. They are CBOT, WCE, and MIDAM which stand for the Chicago Board of Trade, Winnipeg Commodity Exchange, and Mid America Commodity Exchange (MIDAM), respectively.

Now, you may wonder why grains are so important that this system needed to be put into place.

Let's take a look at a few of the grains that have futures contracts: wheat is used to make flour, bread, and crackers. Its byproduct is used to feed livestock, and it's also used by manufacturers to make glues and other adhesives.

Corn is used for food for human, as well as livestock and poultry. It's also used to make cornstarch, margarine, and sweeteners. Ethanol is made from corn, as are some adhesives in the manufacturing world.

Rice feeds billions of people around the globe every day. It's eaten in its original form as a food and as a cereal. The byproducts of rice are used to make fertilizers and other products.

Soybeans are used as a food and to make oils that are found in margarine and salad dressing, just to name a few products. They are also used to make soy milk and tofu. Soybeans are also manufactured into ink, diesel fuel, adhesives and some fabrics.

As you can see, grains are valuable commodities that are needed to feed humans as well as livestock and poultry. They are also valuable in making products that we use everyday. Because of this, there is a great demand for grains.

So, what exactly is a futures contract? A futures contract is a binding agreement to buy or sell grains at a later date. Farmers, as well as other people who are involved in the growing, selling, and manufacturing of grains use futures contracts to ensure that the price of a certain grain will hold relatively steady. Traders on the market earn their livings by investing in and trading grains.

Prices are held steady because of the rule of supply and demand. Traditionally, before the Chicago Board of Trade (CBOT) was organized, farmers and other producers took their grains to market after it was harvested. With so much grain supplied at once -more than was actually needed at one time- the prices they earned were always low.

Future contracts solved this problem because, the buyer could specify when he or she wanted the grain to be delivered. When a contract is traded, the grain may not be even planted yet. This solved the problem of having too much grain at once. And, it keeps the prices of grain commodities stable.

Trending Now

© High Speed Ventures 2011