Sometimes you have to go looking for opportunities when the vampires at the CME are busy destroying the value of your crops.

If corn was trading at $4.20 on the CME, would you short it?  My guess is yes you would!  As it turns out, you can still sell corn on the Bovespa exchange for $4.20ish.  Corn is corn whether you are in Brazil or Chicago.  We're in a global market, so a paper position in corn on a Brazilian exchange should mirror a paper position in corn on the CME, right?   If the US crop is HUGE, then that should put pressure on world markets. 

Think about this in another context:  Let's say a global company trades on the NYSE and also trades on foreign exchanges.  If the price quoted for this stock (after exchange rate consideration) goes up on NYSE, then it should go up on foreign exchange in the same proportion.  If the stock goes up on NYSE but down on foreign exchange, then an arbitrage opportunity is there that the Wall Street firms will exploit!  So imagine that corn is the stock being traded instead of a global company's stock.  The price action should be the same on all exchanges, right?  Corn is corn, just like company XYZ is the same regardless of where it's traded.   

So is there an opportunity for US farmers to sell corn on the Brazilian BOVESPA futures exchange for $4.20ish instead of selling on the CME for $3.40? And has anyone done this or explored doing it? Why sell corn on the CME for $3.40ish when I can sell it on Bovespa for $4.20? It would just be a cash settled transaction just like my CME positions..... obviously not going to deliver to Brazil! 

There are certainly exchange rate considerations, and I don't know what the margin requirements are or what the legal/regulatory/tax aspects would be - if any. But let's just look at the numbers.......

The quote on the corn contract in Brazil is around $23.50 (Brazilian Reals) per 60 kg bag of corn (http://www.bmfbovespa.com.br/en-us/markets/commodities-and-futures/commodities-and-futures.aspx?idioma=en-us click on corn). At today's exchange rate of $1 Real = $0.42 US, that makes $9.87 US per 60kg bag of corn.   A 60kg bag = 2.357 bushels.  So $9.87/2.357 bu = $4.18/bu!!!

One contract in Brazil = 450 bags * 60kg/bag (or 27 metric tons). So check my math here:

1 contract = 450bags * 60kg/bag = 27000 kg..... 27000 kg * 2.2lbs/kg = 59,400 pounds of corn...... 59,400lbs / 56lbs/bu = 1060.71 bushels in one contract


Why wouldn't this work?   Is there an arbitrage opportunity here??  Can anyone overlay a Brazil corn chart with CME corn chart to determine an historical price relationship between these two markets?  What the hell difference does it make if the paper is traded in Chicago or Brazil?  Not enough liquidity in Brazil?  Too low volume?  Meh........ 

Just random thoughts while changing oil and getting ready to harvest this **HUGE** 300+ bu corn!  /sarc