Ending balance this week:

Long on corn – loss 1250.00

Short on wheat – gain 612.50

The past week what I did right is to forget to offset my wheat short position at the first day. And then I realize it is profitable because of the dropping price of wheat and continue to obtain positive profit. So I choose to stay in the short position.

And because of suffering from the big loss in only one contract in previous weeks, I changed my strategy and tried to build up a hedge. I long a corn in the third day. However, the corn price continue to drop down this week. Thus I gain a loss in the long position again.

Also, because I made my decision at night on Vancouver time, all transactions would not be completed until next day. But the market changes every minute. So, after the internet set up in my new bedroom, I would like to make the investment on every morning. Hope that I could meet the market’s office hour in Chicago.

I would say that the price of wheat would show up trend in the following month. But some of the days it would show fluctuated price.

As the historical data show, I made a decision last week to short on wheat. That’s because during the past decades, the price of wheat in late September and early October shows limit down. And during these period, the price shows down trend. Now I still believe in this conclusion. I would think the reason is harvest and strong demand of exporters.

But after that, the price would go up eventually. Since more and more people observe the activated market and choose to join in, they would drive up the price. And because of the shock of big drought, people would fare that in the next year, there is not enough storage and then price would show a ” jump” in some day.

If I could catch the “jump day”, then long a wheat would earn a good profit.

I need to correct my ideas on the market reflection. Since corn and wheat are highly correlated, when the price of wheat jump up, then more and more farmers would choose to use corn. And then drive up the price of corn, faster than I could think.

The adjustment period would not need a week or a month, just couple of days even hours. Because that’s a “world demand”, not a small market.

During the past one week, I obtain positive profit from long a corn position –837.5 in total. But gain a bigger lost in wheat – 1537.89. The net profit this week is negative, again.

The right things I did in the past week is long a contract of corn. During the past week, price of corn increase 5 percent. I made this prediction a week ago when the corn price dropped at the end of a week. After I check the historical data in a year ago, the consumption increase with time passing at the same period. Price also shows an increased trend. And the profit of corn showed that my prediction is correct.

Unfortunately, I made a wrong decision for short a wheat. And because of larger decrease in wheat price, the positive profit of corn is not big enough to cover the lost in wheat. At the beginning of this week, I predicted that the price of corn would go up. And then the wheat price would go up. But the market may need some time to reflect. What’s more, the wheat future market shows weak in past weeks. I thought the price would go down and then go up slowly.

I could not imagine that the market reflect faster than I though. And because of the highly correlation between wheat and corn – the result of our assignment, the wheat market rise very quickly and shows a “jump up”.

Actually, if I did a good research on historical data of wheat, I could get rid of this big lost.

URL: http://futures.tradingcharts.com/news/futures/Corn_pulls_market_sharply_higher_186384743.html

The reason I choose this short news is that it explain how big I lost in short a wheat during the past week. Also supply some directions for looking new information.

As shown in the news, corn push a sharply price increase in wheat, especially in wheat – almost jump from about 850 to 900  At the same time, corn futures price also shrink more than expectation of this summer. I would think that’s because the drought on crops will destroy some supply, then the demand is stronger than expected demand, i.e. the market become very tight.

“Corn futures were limit up, and the corn consumption from June to August was 15 percent smaller than the same period a year ago.” After simple calculation, the price of corn increase 5.29 percent. While, wheat futures ended up 5 percent increase in price, and the consumption increase 27 percent. That’s very interesting. As we know, farmers would like to use wheat to feed their livestocks when corn is expensive. In this case, the increasement of consumption at both corn and wheat shows this rule. And the price increasement is almost the same amount – shows the high correlation between corn and wheat.

Reference:

1. http://af.reuters.com/article/commoditiesNews/idAFL1E8KSBZ820120928

The recent few days wheat and corn experienced a bearish market period. For the sake of decreasing lost in the following week, I would choose to only invest in one future again, before I think I could handle a portfolio.

As shown in the chart in reference 1, the price is fluctuated during the past few days, and drop down latest. There is an indication for long term and short term price trend – long run the price would go down and so is the short run. But at the 24^th, Sept, the price seems to be higher. It is said that “the fast moving average slope is up from previous bar, the slow moving average slope is up from previous bar, price is above the fast moving average, price is above the slow moving average” in reference link source 1^st.[1]

Thus the price would go up or drop down randomly. This is my prediction. I could NOT agree with reference 1 that the price would rally. Perhaps in one day or two the price would go up, but since it is NOT extremely bearish market, the price would also go down because of the harvest season coming soon.

Thus I would think my best option is to short a wheat and long something else. But price of corn also shows a bearish trend. Since I experienced a great lost in the past week, I prefer to stay small share in market and observe how the harvest season would affect the price.

P.S.: Could someone help me how to insert imagine into blog here…?

Reference:

1. http://futures.tradingcharts.com/chart/CN corn chart
2. http://futures.tradingcharts.com/intraday/ZWZ2?anticache=1348462706 wheat chart

URL: http://www.agrimoney.com/news/high-insurance-safety-net-to-lift-us-wheat-sowings–5007.html

As shown in this news, the high insurance safety lifts up the sowings of winter wheat. I conjecture that the price of wheat a year later would decrease if there is no bad weather influenced.

This news seems to support my conclusion – as it says, the higher sowings of winter wheat would gain higher harvest next year, with good weather condition. Since the big supply and assumes that the storage cost is stable, the price of wheat would drop down.

There is an argument in the news focus on how big the “lift sowing” would be. US winter wheat sowings showed “slightly up”, while the analyst of Benson Quinn Commodities points out the insurance payout is attractive. To my conclusion, the difference between these two arguments is how big the price drops – slightly or bigger. If lots of farmers realize the attractive chances and raise up their sowing rate, there is no doubt about the increasement of supply in next harvest.

In addition, the news also points out a successive increase in sowings – which is another support to my conclusion. What need to be noted here is that the price would not show a jump drop, since “soybeans or wheat do not suggest large increases in wheat acres” and farmers need to harvest other productions before they adjust to the insurance rate.

That’s my conclusion from this resource and I think the news is very cool, because it could be helpful to make a long term delivery and I love wheat — whole wheat bread is healthy.

The first trade ended in a total lost of 1237.5 dollars. That’s terrible in the first trade! I would think the main reason was I didn’t follow the latest news.

My first trade began at last Tuesday – long a corn, because I predict that the price would go up. If price would go up, then I could get profit.

On the first and second day after I made the trade, things went as I though. The first day, price went up to 773.75 dollars, and 782 dollars the following day. I obtained about 487.5 as a profit. However, on the third day, since I was busy with looking for place on campus, I didn’t check news and ignore my account. When the forth day, the end of the week, I received two margin calls in total, which means I had continuous lost in the third and fourth day.

The main reason for big lost, as I mentioned above, is to ignore and forget about the account. I didn’t follow the latest news and index. Just predict a long trend but forget about the fluctuation on short term price.

The other reason is that I ignore about portfolio. Random shock and uncertainty always exist, if I could invest a portfolio, such as long a corn and short a wheat if I predict that wheat price would drop down, the lost could be lower.

Anyway, the first week is a new “try”. Since I didn’t invest in future in my home country, how to find useful resources and how to define a portfolio are challenges. I would mark myself as 75 in the past-week trade. I made a lost, but know more about how to purchase a future, and, more important, obtain the first experience to receive a margin call. 😛

Classmates, thanks for your reading and comments! Hope for suggestions! 🙂

I would carry some of my things to my new bedroom, the following two blogs would come today. So busy this week….But finally, would come back normal…Bless!

Question: In about 200 words carefully explain why the cretion of the Gateway pipline from Alberta to Kitimat BC will raise the price of crude oil for Canadian refineries.

I would think there are three reasons for the increasing in price of crude oil price, two connected with supply and demand relationship, and the third one is the interact – effecting between oil market and other production market.

Firstly, since the large Asian oil market, especially China, act as big buyers on crude oil. Asian countries could support higher price because their huge inner demand of oil. Thus the oil price in Asian countries, including China, is higher than Canada. With the frequently communication between the Asian oil market and Canadian oil market, the big arbitrage would promote the oil price in Canada such that the difference between these two market declines. And the world demand of oil is enormous and increasing – let’s take China as an example. Chinese government has already obtained oil resources through buying from the other Canadian areas[1], but still not enough. Therefore, the total demand of Canadian oil would increase, shift up the price.

Secondly, because of the huge demand, and through math analysis by Canadian Statisticians and Economists, the Northern Gateway Pipeline could “work out an industry gain of some $38-billion on an undiscounted basis”.[2] This net profit could also see from the other companies. A soar demanding in Asian market will make the net profit attractable. But it would reduce the Asian Premium at the same time.

Thirdly, other productions connected with oil would be influenced directly by oil price, such as gasoline. The higher oil price means the higher gasoline price. And then the price of gasoline would influence the price of oil. Then prices of these productions would go up with soar of oil price.

References:

1           Internet resources: John Carruthers: Enbridge Northern Gateway Angst Unfounded:
http://www.huffingtonpost.ca/2012/09/04/john-carruthers-northern-gateway-hearings_n_1855716.html

2           Internet resources: B.C. media mogul proposes $13-billion oil refinery for controversial Enbridge pipeline:
http://www.timescolonist.com/news/media+mogul+proposes+billion+refinery+controversial+Enbridge+pipeline/7106798/story.html#ixzz262rpbXDehttp://www.theprovince.com/news/media+mogul+proposes+billion+refinery+controversial+Enbridge+pipeline/7106798/story.html

3           Internet resources: Northern Gateway Pipeline Could Raise the Price of Gasoline:
http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/northern-gateway-pipeline-could-raise-the-price-of-gasoline/article4522968/

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