Week 8 – Was It Luck Or Logic? Luck. Definitely.

Wheat prices kept rising last week. A good reason for that was poor weather conditions in different producing counties (http://online.wsj.com/article/DN-CO-20121107-016197.html).

I figured that eventually prices will come down as many speculators offset their long positions from these rising prices. I read somewhere though (I can’t remember where) that the crop report released Friday was going to indicate better than expected harvest results. When I read that, it was Wednesday afternoon and I already went short on Dec wheat that same morning. My worry was that I went short a day early. Speculators may try to raise prices to increase gains upon release of the report on Friday (shades of Trading Places?). I was also worried that if no one believed this rumor that the report will say better yields, people would continue to take long positions. Obviously with production constraints in different countries prices would continue to rise until a report comes out of better harvest yields.

I woke up Thursday with the price of Dec wheat lower than my price in from the previous day. Not willing to take a chance, I offset my position immediately. I had 3 contracts going and got in at 891.50 and got out at 891.00 (although when I put my trade in it was 888.75, just saying). Sure my gains were meagre (only $24 per contract). Lucky I did because later in the day prices shot up above 900.00. Still above $40000 at $41146.72

Luckily this isn’t real money because if it was, I’d be pretty annoyed. On Friday, the USDA announced that their forecast for US wheat supplies were up 7.6% from its estimate last month (http://online.wsj.com/article/DN-CO-20121109-011476.html). With a report like that, price came down, proving that I went short a day too early.

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1 Response to Week 8 – Was It Luck Or Logic? Luck. Definitely.

  1. Yijeong says:

    Thanks for sharing your strategy and analysis. Appreciate your hard work!

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