I am a day late in blogging about the week ahead. Although hurricane Sandy hit New York, commodity traders felt the impact more in Chicago more than the investors trading at the Wall Street Stock Exchange (the New York stock market was off today and very likely to close tomorrow as well).

The price of 2012 November soybean decreased by 2.3 percent to $15.27 a bushel at the end of the day. This is due to a couple of reasons. Firstly, Hurricane Sandy disabled liquidation of funds in New York stock market, therefore, the soybean prices felt the downward pressure as traders sell hedge funds to raise cash.  Secondly, the 2012 November soybean future is nearing its expiring date, hence, investors have started to quit and sell off the contracts at hand. Thirdly, better weather is experienced in South American areas that are planting the oilseed. This implies that prices would decrease due to stronger future supply. Lastly, there are increased orders of price spreads that involved the longing of corn and shorting of soybeans.

My strategy for soybean now would be to long because I expect the soybeans to regain value after the markets return to normal.

In addition, I am going to long corn because US corn exports would increase since competitor supplies from South America decrease. There is evidence that the US export volume this week is 15.5m bushels, which is significantly above the 10.4m bushels during the previous week. Furthermore, there is increase in the price competitiveness of the US corn in the world market (Brazil corn was cheaper than US corn by a dollar per bushel one month ago and the price difference narrowed to a quarter dollar per bushel currently).

http://www.agrimoney.com/marketreport/evening-markets-hurricane-sandy-hits-chicago-worse-than-ny–1852.html

One cool source of information as recommended by Iris is http://www.agriculture.com, which has comprehensive commodities market commentaries. It is always good to look at commentaries from various established websites for cross checking purposes.

The intra-market seasonal spread I bought on corn two weeks ago has been showing a positive outlook.

I am not offsetting the spread but I am going to buy more contracts of this to leverage on the seasonal changes in the corn market.

In addition, as mentioned in my last week’s post, this week’s corn prices worked sideways. However, the highlight of the week was when US export sales went down. The actual US corn export is 140,300 metric tons whereas traders were foreseeing that the volume is between 150,000 and 250,000 metric tons. Hence, there was a downward pressure on the corn price due to decreased demand. This is in accordance to the fact that the corn supply this harvest is record low; therefore, demand has to shrunk somewhere.

http://www.agweb.com/article/end_users_skimp_as_corn_supply_is_divided_up/

http://www.agweb.com/article/strong_long-term_outlook_for_prices/

I have been wondering what does WASDE stands for whenever I read some commentary. It was only today then I realized that it means World Agricultural Supply and Demand Estimates (WASDE). Basically, the report states the precise export and import amounts of the grains and lists down the major exporting and importing countries before totaling them up to give the world’s supplies and demands. I scanned through the October 2012 World Markets and Trade Report on Grains and there are several noteworthy information in the report. For one, although the US is the largest corn exporter, Brazil, Argentina and Ukraine have been expanding corn production to eat a piece of the high-rising corn price cake. In fact, combined exports from the countries are estimated to be more than that from the US consecutively for two years. In addition, US domestic consumption of corn for the year 2012/13 is predicted at 254,012 thousand metric tons whereas the domestic production is estimated at 272.488 thousand metric tons. Comparing with the year 2011/2012, the domestic production decreased at a larger magnitude (313,918-272,488= 41430 thousand metric tons) than the domestic consumption (278,972-254,012=24960 thousand metric tons). This suggests that the average corn price this year is definitely going to be higher than the average price of last year. Furthermore, US’s corn export would have a hard time to remain competitive with the South African countries.

http://www.fas.usda.gov/psdonline/circulars/grain.pdf

Corn harvest was about ninety percent done and the soybean harvest was about eighty percent done now.

In the beginning of the week of 15^th to 19^th October, the grain markets dropped. Better than predicted soybean yields and favorable South American planting weather explained for this early week slip. However, in the last few days, South American weather became dry, which is not conducive to germinate the seeds. Hence, the soybean rose later in the week.

The reduction in corn prices early in the week halted because farmers’ selling slowed. Farmer began to store the crops as they predict that the prices are going to go high in the near future.

http://www.agweb.com/article/price_rallies_likely_as_rationing_continues/

In addition, on Friday (19^th October), private analytics firm Informa Economics released its 2013 US Acreage Update. Informa stated that farmers would be able to plant more corn, soybeans and wheat in 2013 in relation to 2012 due to land acreage being available from the Conservation Reserve Program.

http://www.agweb.com/article/rally_time_for_old-crop_prices/

However, I feel that this piece of news may have negligible impact on crop prices because the firm only made a little adjustment to its previous-month forecasts and the numbers are still long from being final.

Hence, I believe that the market next week will have little fluctuation and close speculation of the market is needed to know what to buy and sell.

Blogging was temporarily paused last week due to the preparation of midterm. So, I am back again.

The most significant episode during the past two weeks was the time when the USDA released the crop production report on the 11^th of Oct. I woke up seven plus in the morning (9am in Chicago) to check the crop supply forecast. It stated that the corn yield forecast stands at 10.7 billion bushels, which is slightly lower than the September prediction and 13 percent down from 2011. The estimate depicted the lowest production in the US since 2006. In addition, USDA predicted that the US corn inventory was 619m bushels, which is the lowest in 17 years. However, the USDA refrained from making further cuts for the prediction of the domestic consumption of corn.

http://usda01.library.cornell.edu/usda/current/CropProd/CropProd-10-11-2012.pdf

http://www.agrimoney.com/news/grain-prices-rise-after-us-says-stocks-to-stay-low–5092.html

These changes in supply and demand of corn suggest that the price of corn was going to shoot up. Hence, the corn price almost underwent a ‘limit-up’; the opening price was 736.50 cents per bushel and the closing price was 773.2 cents per bushel (the increase was 36.7 cents per bushel or 4.9%).

I bought a few contracts of corn right when I saw the news. However, due to the lag of TradeSim, my orders were not validated till a few hours later. Thus, I did not make much money. BOooo…~

I think by now, everyone is familiar with the Chicago Board of Trade. Hence, I went to the Minneapolis Grain Exchange and Kansas City Board of Trade websites to take a look. Although the web pages may not look as professional and sophisticated as the one by CTOB, the websites have valuable market commentaries. For example, KCBT has weekly wrap-up of its wheat futures market and MPLS has links to many reports and newsletters written by private commodity consultancy groups. The links flooded my brain with information and they are definitely worthy to read.

http://www.kcbt.com/commentary_1.asp

http://www.mgex.com/market_commentary.html

I just tried something new for the coming week because I realized that there is no way that I could beat the market and get information beforehand. I could only make my own judgments and predictions by using sources of information and commentaries from experts.

To follow up on what I learnt about future spreads, I bought an intra-market seasonal spread. I long December 2013 corn at a price of 624.25 cents per bushel and short July 2014 corn at 641.50 cents per bushel simultaneously. The rational behind this is that December contracts may be under pressure during the fall harvest due to the wide basis levels. As the harvest unfolds, the December contract will then gain on the July contract the next year. In this scenario, I am supposed to buy December 2012 corn and sell July 2013 corn since it is the fall harvest season now. However, I did not long December 2012 and short July 2013 corn because somehow the December 2012 corn’s price (744.20 cents per bushel) is even higher than the July 2013 corn contract (734.00 cents per bushel). Therefore, I bought the next year’s contracts and this may not be possible in the real world.

http://www.trading-systems.info/Options_Spreads/seasonal_patterns.htm

In addition, USDA is coming out with another report on 11^th October and I have to watch the market carefully around that time!

Things were pretty bad for the past week. I still held two December 2012 corn contracts and two March 2013 corn contracts from last week, all in short position. I was unable to offset all four of them because the price shot up last week due to revisions in stock inventories by USDA. Hence, I was hoping that the prices would stabilize and rise a little. Luckily, at the end of the week, the average of the various agricultural research groups’ estimates for US corn output and yield are 10.754bn bushels and 123.6 bushels per acre, which are higher than the current USDA figures (10.727bn bushels and 122.8 bushels per acre). This drove down the sky-high corn prices a little. The two C3H contracts made a little profit of (756-748.50)/100*5000*2=$750. However, the two C2Z contracts were still losing money (725-748)/100*5000*2=-$2300) and I am contemplating whether to offset them or not.

http://www.agrimoney.com/news/corn-soy-prices-retreat-on-informa-crop-revisions–5073.html

The real looming news is actually the performance of wheat.  I held two contracts of wheat that are losing a lot of money. It was a careless mistake and the two contracts were kind of stuck there. I hope that the scenario would be a little better next week so I will not lose so much money when I offset them.