funtime

In the coming week, the main strategy is ” hedging”, which means i will share risks between 2 commodities: corn and soybean.

In my judgement, corn is most likely to drop in price for several days[i], because of the coming harvest in USA. Though, in the growing season matter how much the harvest is, it will for certain increase supply in the market and drag the price downwards. Besides, when you search on the Bloomberg with “corn”, the news titles were all harvest new in around world: china especially, as well as French. Though the price has declined in some degree, it is still on a historical high price, according to mundi index 10 years data[ii].

In a short run, on oct. 11, report on corn and soybean size will be released; it will be major supply information[iii]. So now we can in advance make a forecast, be ready ahead.

In the consumption, the exportation of corn has been accelerated in September. However it is still under the expectation of US government, also the ethanol consumption is still under last year’s level. Since it is only several percent below last year, and I believe market has reacted to that, I conclude that though the exportation will larger in October but has no many effects on price.

Beside corn, I plan to hedge the corn with soybean. Soybean’s production has been stable recently. But what’s wired is that China has purchased large amount of soybean. This confirmed my previous research results: Chinese government has released news that China’s has a sufficient soybean stock which is meant to suppress soybean price and also cover the truth that stock level is far below normal.   Hence it will be highly likely soybean price will rise in several days.  In another dimension, soybean price is somehow unreasonable unstable with large fluctuation. In this sense, it is suit for hedge purpose.

In conclusion, I will go long in soybean and at the same time speculate corn go short in the coming days.

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last week i went long on corn of 4 contracts, hoped that the corn would have a surge on the  beginnign of last week (base on a information last last friday, i assumed nobody has reponsed to it).  What i went wrong is that  i inaccurately estimated the speed of market response.  Any information, as long as its last day’s, there is no need for you  to reponse to it today.

what i did right is that i stopped loss in a quick way.  The following trends in the week turn out i was i right. If not so, i would have been perfectly dead. now the price is 740!~At the same time i closed the long contracts on corn, i went long for corn only one contract ( test of water).It turned out also right. This morning i closed the transaction ( though don’t know when the system will excute), the current price is $740, however, if i can close it at $748, i can make a gain of :Not so much gain, but compare to loss, it’s better, isn’t it?

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1.  http://www.technicalanalysis.org.uk/

a webstit for technical anlysis. Maybe we can apply some of the skills in it.

2. https://www.theice.com/homepage.jhtml

Famous ICE, we can’t trading without knowing this!

3. http://www.fcc-fac.ca/en/agnews/markets_e.asp

real canada agricultural commodity price figure.

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This week, I decide to go corn, to try something different. But I will keep an eye on soybean (which by lucky, I got some profit out of it). Since its market is so fluctuated, if you lose big, you can also win big.  In the coming week, I will go long on soybean base on the information last Friday and also the fundamental analysis about it.

Let’s start from the four aspect of  the fundamental analysis: demand, supply, storage and policy.

The IGC announced that the demand may likely to decline as of the tight supply and high price, as well as the decrease demand of feed and industrial use[i]. However, from my point of view, decreasing demand will cause decline of future price would not necessarily happens. For two most important reasons: one, industrial need of corn is an upward trend; two, china, as a large exporting country, has transformed into importing country, according to the recent report. Plus, in the last three years, Chinese government has utilized large amount of inventory to smooth the inflating prices. This year, china has no choice but to choose to import.  Combined these two point, I think demand will not decrease largely.

From the supply side, corn supply will be even tighter in the coming days. Corn price had a surge on sept 28^th since an unexpected low inventory level report by U.S department of agriculture. [ii] The market quickly reacted to it, price increased as much as 46 dollars! Plus, another information, which the market has not react to before the week ends is that the IGC report claimed a more lower harvest estimated a years ago.  Hence, for the coming week, corn may continue to go crazy after this week.

For the storage, china and US as I mentioned above both have low strategic inventory level which can drive up the market price. From the policy side, some economists predict that US government will introduce QE policy, no matter how much it work, it is an upward pushing force.

In conclusion, I expect corn price will keep up in recent 2 days.  But When it comes to mid-orctober  the new harvest of corn come to market, The price may adjust back.

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The commodity I choose for the first time transaction is soybean.  I expect a sudden collapse in a recent period in future market hence I went short for a short run speculation.

For fundamental analysis there are four aspects I concerned with: supply, demand, stock and policy. From supply respective: three major soybean produce country have decline in output. China , Brazil, USA. Except china, both Brazil and USA are suffering from drought during soybean’s pod bearing period which will largely affect the output.  The shortage in supply is also the root cause of soybean’s constantly increasing price. Policies of each countries preferred to reserve stock and encourage output. Also,  Stock is reached the lowest level of the year.

From demand respective, from 2012~2013 the consumption of soybean will decrease about 3 million metric tons for reasons of [i]: too high  price and downward sloping consumption of biodiesel. However the price of soybean is constantly mounting which has arrived a historically high price. From the historical data of Mundi index[ii], in the last 8 years, the price is around 300~400 per matrix ton. In 2011, the price went up to 400~500, and this year all the way up, goes up to an unreasonable high price of 622!  Hence I believe there is a big bubble in soybean future market. Every spike followed with a collapse. As well as the policy in each country will also effects. Take china as an example, the government is plan to release 0.4 million tons of soybean to the market in sept. 27.  That’s why  I expect a sudden recession will occur in octorber.

In a long horizon, the price may recover after the sudden decrease and reach to a plateau. Next year the price would be even higher because of the storage cost.  Hence, for a short run speculation, I went short for soybean.

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According to the interview in the radio and information gathered, crude oil price could increase for combined reasons.

First, the purpose of North gateway pipeline is to take advantage of Asia premium and to sell crude oil to Asia market[i]. Obviously, Company is more willing to shipping oil to Asia rather than sell domestic. Less supply and company’s unwillingness to sell at the original low price can push the price up. Also, with the access to Asia market, the increasing demand of countries like china will ultimately shift the price up.

Second reason is price to pay for the environmental cost. Though Enbridge Corporation announced that they are following the “world class safety standard”, this company has over 770 reportable oil spills from 2008~2010. And cleaning cost can be very expensive. For example, Kalamazoo spill in 2010 cost Enbridge $765 million in 3 months, but only 3 miles out of the 39 miles long river open to the public. [ii] It has no way to dramatically increase construction quality in a short period of 1 year. Third, the cost of the construction, of course, may lead to a direct increase in crude oil.

Finally, because of already high price of gasoline, Canadian refiner has to swallow the price to keep the competitive advantage[iii].

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