Commodity traders thrive in highly liquid markets that provide easy access to the world's most popular futures contracts. Lower bid/ask spreads in these venues reduce slippage during entry and exit, thereby increasing profit potential. Meanwhile, less erratic price action supports short-term intraday and swing trading, as well as long-term position trading and market timing.

New participants often confuse commodity futures with index and financial futures contracts including the S&P 500, Eurodollar and 10-Year Treasury Notes. Commodities represent real physical substances that can be bought or sold on spot markets. They originate inside the Earth or on top of it—rather than in the minds of Wall Street mathematicians. Commodities have physical supply and demand limitations that impact pricing, while financial instruments can be created from numbers on a spreadsheet.

Key Takeaways

  • The Chicago Mercantile Group is ranked as the top futures exchange in the world, handling three billion contracts annually to the tune of $1 quadrillion.
  • Like all world markets, commodity futures volume and open interest fluctuate in response to political, economic, and natural events including the weather.
  • Commodities attract fundamentally oriented players including industry hedgers who use technical analysis to predict price direction.
  • The top five futures include crude oil, corn, natural gas, soybeans, and wheat.

CME Group: An Overview

The Chicago Mercantile Group (CME) is ranked as the top futures exchange in the world, handling three billion contracts annually. This amounts to about $1 quadrillion in trading. The group was formed after decade of consolidation that added the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX), the Chicago Mercantile Exchange (COMEX), and the Kansas City Board of Trade (KCBOT).

The exchange was founded in 1898 as the Chicago Butter and Egg Board until the name changed in 1919. The first futures contracts were issued in the early 1960s, and later added financial futures and currency contracts followed by interest rate and bond futures.

Identifying Top Commodity Markets

Like all world markets, commodity futures volume and open interest fluctuate in response to political, economic, and natural events including the weather. For example, a Midwestern drought can generate strongly-trending agricultural futures, attracting capital from other futures venues. 

Volatility tends to gradually rise and fall over long time periods. That's because commodity trends develop slowly, and can last for years and decades rather than weeks or months. The combined exchange reported the top five commodity futures contracts as of the end of trading on Nov. 26, 2019, as follows:

 

Commodity

 

Average Daily Volume (ADV)

 

Open Interest

 

Crude Oil (WTI)

687,479

2,187,168

 

Corn

532,269 1,505,976
Henry Hub Natural Gas Future  466,455 1,233,792
 

Soybeans

192,684 807,569
Chicago SRW Wheat Future  134,676 357,978

Long-Term View on Top Contracts

Ten-year price charts provide a solid technical foundation for traders and market timers looking to play these highly liquid instruments. While commodities attract fundamentally oriented players including industry hedgers, technical analysis is widely used to predict price direction. In fact, modern charting has historic origins in the 17th-century Dutch tulip markets and 18th-century Japanese rice markets.

Technical analysis is widely used to predict price direction for futures contracts.

Crude Oil Monthly Chart

Crude oil futures hit an all-time high at $147.27 in June 2008 and sold off into the upper 30s during the economic collapse. It recovered around 70% of the steep decline into the 2011 top and eased into a trading range, bounded by $112 on the upside and $80 on the downside. The contract broke down in 2014 and entered a steep downtrend that tested the bear market low in the third quarter of 2015. A new uptrend began in mid-late 2017, hitting the high 80s in Oct. 2018 before leveling off to the high 50s at the end of November 2019.

Corn Monthly Chart

Corn futures went to sleep between 1998 and 2006, carving out a long rounded bottom that attracted limited trading interest. It entered a strong uptrend in the second half of 2006, rising vertically into the 2008 peak above $7.00. The contract lost more than half its value during the economic collapse, finding support near $3.00 and entering a recovery wave that topped out above $8.50 in the middle of 2012. The subsequent downtrend relinquished four years of gains, with price settling just above the 2008 low in the second half of 2014. Quiet basing action since that time may last into 2016 or longer, with the next uptrend finding substantial resistance above $6.00. These prices tapered off to about $4 by November 2019.

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ZC.Z18.E) Future Chart
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Natural Gas Monthly Chart

Natural gas futures trade unlike other energy or commodity markets, with a 20-year series of vertical spikes that have been repealed as quickly as they appear. Rallies above $10 in 1996, 2001, 2006, and 2008 met with heavy resistance that triggered nearly 100% retracements over the next one or two years. As of the end of November 2019, natural gas futures contracts were trading around the $2.50-mark.

Soybeans Monthly Chart

Soybean futures bottomed out at a multi-decade low between 1999 and 2002. The contract then entered a strong uptrend that posted vertical rally peaks in 2004, 2008 and 2012. It turned lower in the second half of 2012, in an orderly correction that accelerated to the downside in 2014. The decline ended just above the 2009 low. By late Nov. 2018, prices spiked above $27. As of November 2019, soybean futures were trading at about $9 a bushel.

Wheat Monthly Chart

Wheat futures sold off into 1999 and carved out a rounded bottom that persisted into a 2007 breakout. The contract went vertical into 2008, hitting a parabolic all-time high near $12.00 and collapsing in an equally ferocious downtrend, giving up 100% of the rally in just two years. The contract bounced in late 2009, retracing two-thirds of the decline into a three-year double top pattern that broke support at $6.00 in 2014. The subsequent downtrend has been testing $3.00 for nearly a year, with that level marking support for more than a decade. Wheat futures have nearly doubled, reaching almost $6 as of November 2019.

The Bottom Line

Crude oil leads the pack as the most liquid commodity futures market followed by corn and natural gas. Agricultural futures tend to generate the highest volume during periods of low stress in the energy pits, while gold futures have gone through boom and bust cycles that greatly impact open interest. It now stands as the seventh-most-traded commodity contract, just behind RBOB Gasoline.