What WENT RIGHT (Sept. 23, 2012)

What Went Right

A comprehensive comparison of the USDA’s weekly reports in August of this year to the reports of last year reveals that a higher percentage of US corn grain acreage was harvested this year as compared to 2011.¹ The stock of corn in the markets this year is thus larger.  To be exact, the data states that new corn available before September 1 in the current year was around 600 million bushels greater than what the number was in the previous year. However, the USDA predicts that the majority of the production this year has been registered and after the month of September, there will only be a slight increase in the corn stock.

The higher and earlier than usual harvest this year will have implications on price and consumption of corn. I assumed the price of corn will continue to rise in the long run due in part to findings stated above and secondly, because of the drought in recent times. The prediction made by the USDA that the corn stocks will not increase significantly will incentivize farmers to store the newly produced corn with the previously stored, in hopes of getting a higher price in a few months time. This would mean that farmers will carryover the stocks, as discussed in last Wednesday’s lecture, and the price will rise. Since, this was only my second trade, and I had planned to stay in for a few days only, I figured my short term strategy should just be to go short in the contract. The reason behind that decision was that the remaining incoming corn and a high volume of corn at the moment will lower the prices for at least a couple of days. Moreover, the decision proved to be an informed one because as opposed to the previous attempt, this week’s trade won me 287 dollars.

References:

¹http://www.thepigsite.com/swinenews/30945/early-corn-harvest-september-stocks