I continued with my short positions on corn this week by holding onto two December 2012 contract (C2Z) and two March 2013 contract (C3H) in the CBOT corn market. After I received my trading report on September 27th, I was brimmed with joy because I made quite a significant sum. The profit for the two December 2012 contract was 2*5000*(7.56-7.195)=$3650 and the gain for the two March 2013 contract was 2*5000*(7.25-7.1625)=$875. In total, I made $4525.
There are several factors behind this plunge in corn prices. For one, there was a substantial drop in US corn exports. Corn sales were only 368 tonnes (approximately 1.5 loads of a large lorry!) as compared to 69,578 tonnes last week. Secondly, some suggested that the US corn is overpriced in comparison with other origins. This caused some local US hog producers to buy corn from Brazil (North Carolina hog producer Prestage Farms sign a largest import of corn on record by demanding 750,000 tonnes of corn from Brazil).
However, when I woke up on Friday morning (September 28th), the direction of corn prices reversed. In fact, the upward surge in corn prices exceeded the daily price limit of $0.40 per bushel for both C2Z and C3H. I even had a margin call of $1562.50 per contract on C2Z because the contracts have lost an excessive amount of value and thus need to be topped up. I lost 2*5000*(7.595-7.56)=$350 for the two C3H contracts and 2*5000*(7.5625-7.25)=$3125 for the two C2Z contracts. My margin account balance is 4*1080-350+2*1562.50-2*1562.50=$3970.
The grain stock report released by the US Department of Agriculture caused this fast and dramatic upswing of corn price. In the report, it was mentioned that US corn inventories totaled 988 million bushels on September 1, 2012, down 12% from September 1, 2011. The number represented the lowest carryout in eight years, as a result, the price of corn bounced up sharply again. From this, I learnt that information get assimilated in a super duper fast manner and close tracking of the current news is critically important in the trading market. In addition, USDA’s inventory reports are key drivers and predictors of the market movements.
http://www.usda.gov/nass/PUBS/TODAYRPT/grst0912.pdf
http://www.agrimoney.com/news/sharp-fall-in-us-corn-stocks-revives-grain-prices–5044.html
Hey Chen Zhuo, I enjoyed reading your analysis. Indeed, corn prices are quite volatile this week! I actually suffered in huge loss due to my bad decision of taking on short for corn and wheat after the market has a HUGE plunge on prices. Thanks for sharing the websites!
Hi Chen,
Good job on trying to explain calculation. Just to be clear, when you say “margin account”, which one you referred? Your “Position” value or “Committed”? I think you’re referring to the “Committed”.
It’d be nice if you include comments on your current position. For example, if you are still holding contracts or offset them.
Thanks.