As I mentioned on last week’s blog, I took the long position in 2013 March wheat for this week’s trading. I predicted that wheat price would increase during that non-harvesting period because Russia, one of the main exporters of wheat, has been suffering from drought. The president of the Russian Grain Union announced that only half amount of the last year’s export, which is about18-20 million tons, would be exported. Severe dry weather lowers wheat production in Russia as well as in USA. It was also predicted that wheat harvest outputs would shrink in Australia. This week’s trading did go well as I expected it to be; I gained $1550. Honestly, I was going to do offset earlier because wheat price had decreased for first several days of this week. Wheat future price fell due to forecast for rain that will boost the winter wheat production. But, wheat price dramatically went up as soon as after USDA released the report that stockpiles of corn and wheat will shrink due to drought. Therefore, I did offset my long wheat position on Friday, the day the report was released, and trading was successfully done with large gains.

I have got few useful websites for the trading game.

http://www.cmegroup.com/trading/agricultural/

The first one is the CME group. This website shows all the prices of traded commodities as well as agricultural products. The CME group updates the price more frequently than the trade sim does, the website we do trade. CME also provides a change between the settlement price and the previous price. Price and trade volume charts are shown graphically, so, it is easier to understand what is going on.

http://www.usda.gov/wps/portal/usda/usdahome

USDA provides collective links of current agricultural news and research, climate change, and national grain reports. There are tons of reports on the website, but the report on the national grain market summery is useful for checking the flow of grain market day by day. Using this summary will be helpful to read trends in national grain markets and predict whether the grain price will go up or down.

http://www.apk-inform.com/en/news

This website includes current agricultural news and harvest and export reports of Ukraine, Russia, Kazakhstan. The news posted on the website shows what is happening and how this can impact on these countries to trade.  The report from the website also shows changes in harvested and exported amounts.  Ukraine, Russia, Kazakhstan are large exporters of wheat. So, if you are interested in Wheat trade, this website will be useful and helpful in predicting the future prices of wheat and guides you to choose good initial positions.

For the following week, I am planning to use weather as a main reference to choose my initial position in the trading game. Weather is one of the most critical factors that affect the world price of the crops. Depending on the weather condition of exporting countries, the amount of crop harvested can be higher or lower than expected. The greater the amounts harvested, the greater number of crops are available in the world market at a cheaper price. Conversely, if less amounts are harvested, a less amount of crops are available in the world market at a higher price. Russia, one of main exporters of wheat, has been suffering from drought conditions that have dropped estimates of this year’s harvest.  Russia’s Ministry of Agriculture estimated that 80-85 million tons of grain will be harvested which is relevantly small compared to 94 million taken in last year.  According to a decrease in harvest, Arkady Zlochevsky, the president of the Russian Grain Union predicted that 18-20 million tons, half amount of last year’s export, will be exported. However, Russia has the new edition of the national program for development of agriculture for 2013-2020 to increase its grain exports. This program with a setting target of 115-million-ton of grain harvest by 2020 will be adopted in next early July. Therefore, I will choose to be in a long position for 2012 December or March wheat because the price will increase during this non-harvesting period.

http://www.businessinsider.com/the-worlds-biggest-wheat-exporting-countries-2011-4?op=1

http://rbth.ru/articles/2012/07/29/russia_to_cut_grain_exports_by_half_16793.html

This week, the first week of the trading game, it didn’t go as well as I expected it to be. As this week was the first week, I was scared to start the trade commodity and wasn’t sure how to play well. So, I just used basic knowledge of the trade to understand the game strategy first.  I was initially in long position for corn in September, 2013. September is a corn-harvesting period therefore more amounts of corn are available and the price keeps going down during this period. I thought if I bought this crop in September at the cheaper price, I could resell it during winter, a non-harvesting period, at higher price.  Then I could get some margin. However, for the trading game, I should do an offset if I wanted to cancel my initial position. I suppose to change my long position for corn in September, 2013 to short position for the same commodity in the same period. There was no way in reselling this September corn in December. As I held a long (buy) future position, I received a debit in my margin account because the settlement price decreased from the previous day and the market price kept declining.  My misunderstanding of the definition of “offset” was the reason why I got the loss.

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http://www.cbc.ca/asithappens/episode/2012/09/04/the-tuesday-edition-45/

Why the creation of the Gateway pipeline from Alberta to Kitimat BC will raise the price of crude oil for Canadian refineries.

Northern gateway pipeline is proposed by the Canadian oil and gas company, Enbridge, to transport bitumen from Alberta to Kitimat, BC then shipping the oil to Asia.  http://www.cbc.ca/news/canada/story/2012/01/10/f-northern-gateway-pipeline.html

Gil McGowan, the president of the Alberta Federation of Labour, concerns that the pipeline would result in a higher loss of current Canadian jobs than new ones created due to an increase in the cost of production. According to McGowan, Canadian oil producers will have access to Asian Premium if the Northern gateway pipeline is built. It means that Asian countries, China specially pays more for crude oil than Canadians paying for it in North America.  If Canadian oil producers receive a higher price from China for the oil, domestic consumers buying from Alberta will need to pay more than ever before including individuals, business owners and refineries. http://www.cbc.ca/asithappens/episode/2012/09/04/the-tuesday-edition-45/

This situation can be explained by the general economic notion that domestic price would increase by a decrease in domestic oil supply. By Asian Premium, Canadian oil producers prefer selling more amount of oil to Asia for a higher price rather than to Canadians at a cheaper price. This way the producers make a greater profit.  Because of this, Canadian refineries make an effort to higher their price in order to consume the amount they need. The bigger the amount of oil exported from Alberta to the market in Asia, the less available for domestic demand including Canadian refineries. That is why the Northern Gateway pipeline from Alberta to Kitimat BC will raise the price of crude oil for Canadian refineries.