First of all, I really want to say thank you to my classmates who kept listening to my concerns and helped me out with the housing problems that I faced. If I did not get support from you guys, I think I would still feel depress by now. Fortunately, the housing problems are all settled and everything has gone back to normal. Thank you so so much guys!!!

Since I lost large amount of money last week, I decided to offset all of my contracts at the beginning of this week if the trend of price still kept decreasing. I knew that I would lose money since I was taking long position all the time for the contracts, but I really wanted to get started again. Just like the last time I said, how about just let it lose and get it back later? I will not give up…

Sep 26, 2011

Since the news from Saturday and Sunday is very limited, I did not want to take risk to take long or short position when there was no information provided, so my margin balance on Sep 26 is:

Corn (did not bid): (-3)*(638.4-648)*50=1440

Soybean (did not bid): (-1)*(1258-1259.6)*50=80

Margin Balance=12360+1440+80=13880

Sep 27, 2011

It looked like the price trend went up a little bit by today, but gradually decreased after that. To prevent further decreasing in price, I decided to offset my corn and soybean.

Corn (3 short position, offset): (3)*(649-648)*50=150

Soybean (1 short position, offset): (1)*(1260-1259.6)*50=20

Margin Balance=13880+150+20=14050

Sep 28, 2011

Since I did not have time to summarize the news today, I only looked at the price trends. The price of corn seems like going up a little bit by today, so I was hoping that it would continuously go up a little bit by tomorrow to make a small amount of money. So I decided to take a long position to try it out.

Corn (1 long position): (-1)*(645-630.6)*50=-720

Margin Balance=14050-720=13330

Sep 29, 2011

According to the news, Brazil was threatened by La Nina, which would cause the production of soybean to decrease. If its production of soybean decreases, the price would increase. Farmers would like to increase selling their soybean to Brazil at a higher price instead of selling to the U.S, and importers would like to import from the U.S since the price of soybean is relatively lower than Brazil. As a result, the domestic supply of soybean would decrease in the U.S and the price of soybean would go up. So I should decide to go long on soybean.

I thought this was the main factor to affect the price on Sep 29 since Brazil is the second largest exporter of soybean in the world. If its production was threatened by weather or other factors, it would have effects on the price of soybean. And I think my analysis was correct on this day since the price of soybean really went up on Sep 29.

However, since I drew a wrong diagram when I was doing my decision, which made me think that the price was going down. Instead of going long, I accidentally went short. Fortunately, I did not successfully sold out since the selling price that I bid was too high.

Corn (1 long position, want to offset, but did not success): (-1)*(630.6-632.4)*50=90

Soybean (3 short position, but did not success)

Margin Balance: 13330+90=13420

Sep 30, 2011

Almost all of the news that I read yesterday indicated that the price of soybean and wheat would increase by today:

-China increased its imports of soybean from the U.S

-Drought weather delayed the planting of wheat, and U.S was facing stress of cropping of wheat

-Website of Bloomberg and dairy herd all predicted that the price of wheat and soybean would increase by today…

However, when I woke up this morning and check the prices, they all went down SHARPLY!!!…

Corn (did not bid, so did not offset): (-1)*(632.4-592.4)*50=-2000

Soybean (2 long position): (-2)*(1215-1179)*50=-3600

Wheat (3 long position): (-3)*(637-609.2)*50=-4170

Margin Balance: 13420-2000-3600-4170=3650

T^T…T^T…T^T…

Continuously losing money…so I think I really have to find out the reason why I lost again…and also, although the closing prices have not shown by now, I am quite sure that my profits would be quite negative by the end of this week…

Lessons that I learned at the end of the week: don’t be afraid of losing money, and don’t be afraid of losing money again. Be afraid of losing money again and again…

Since last week I totally calculated my profits wrong, in this blog, I am going to show the process of changes in my margin balance from the beginning of Week 1 to Week 2:

Sep 14, 2011

Corn (2 long position): (-2)*(732-724.2)*50=-780

Wheat (1 short position): (1)*(707-704.4)*50=130

Margin Balance: 25000-780+130=24350

Sep 15, 2011

Corn (did not bid): (-2)*(724.2-701)*50=-2320

Soybean (2 short position): (2)*(1380-1358.6)*50=2140

Wheat (did not bid): (1)*(704.4-696)*50=420

Margin Balance: 24350-2320+2140+420=24590

Sep 16, 2011

Corn (did not bid): (-2)*(701-692)*50=-900

Soybean (did not bid): (2)*(1358.6-1355.4)*50=320

Wheat (did not bid): (1)*(696-688.2)*50=390

Margin Balance: 24590-900+320+390=24400

Sep 19. 2011

Corn (1 long position):

(-1)*(697-692.2)*50=-240

(-2)*(692-692.2)*50=20

Soybean (1 long position):

(-1)*(1362-1355.4)*50=-330

(1)*(1355.4-1336)*50=970

Wheat (1 long position):

(-1)*(694-688.2)*50=-290

Margin Balance: 24400-240+20-330+970-290=24530

Sep 20, 2011

Corn (did not bid): (-3)*(692.2-690.2)*50=-300

Soybean (did not bid): (1)*(1336-1338)*50=-100

Wheat (did not bid, offset)

Margin Balance: 24530-300-100=24130

Sep 21, 2011

Corn (did not bid): (-3)*(690.2-685.6)*50=-690

Soybean (1 long position):

(-1)*(1338-1338)*50=0

(-1)*(1338-1320.4)*50=-880

Wheat (did not bid)

Margin Balance: 24130-690+0-880=22560

Sep 22, 2011

Corn (did not bid): (-3)*(685.6-650)*50=-5340

Soybean (did not bid): (-1)*(1320.4-1283)*50=-1870

Wheat (did not bid):

Margin Balance: 22560-5340-1870=15350

Sep 23, 2011

Corn (did not bid): (-3)*(650-638.4)*50=-1740

Soybean (did not bid): (-1)*(1283-1258)*50=-1250

Wheat (did not bid)

Margin Balance: 15350-1740-1250=12360

Aii…not that much money left to lose again lah…hope Jim could put more money into our margin balance lah…>”<…T^T…

In this week, I think the most important thing that I learned is to forget about the profits or losses of future contracts and focus on the analysis of why prices went up and down. I actually suffered large amount of losses this week, and I thought that I should feel so frustrated. But just after a little bit of frustration, I talked to myself: how about just let it lose and get it back later? It may bring me more than I want to learn. I really hope to learn more tools to analyze the prices, even the tools may make me lose more and more, but I will not give up since I am actually enjoying the process more than the result.

When I was reading the news for the commodity future yesterday, I found that the export and import diagrams that Jim taught in class are very useful for us to analyze the prices. I used to think that we should use one fundamental economic diagram of demand and supply to analyze the prices instead of the three trading diagrams, but I was wrong, and that was the major reason that I predicted the prices reversely.

There are 3 major factors and 2 minor factors that I found in the news and the group blogs that created by our classmates that would be useful to analyze why the prices were bearish in this week:

Major Factors:

-Economic recession fears

The prices fell sharply on Thursday due to the reason that the investors of commodity futures were afraid that the economic recession would grow up further to devalue their commodity futures. As a result, the investors urged to pull their money out of the futures market to prevent losing their money further. The reason of the economic recession was the Greece defaulted about their debts, and Bank of Swiss was downgraded of its credibility. I was quite interested about the reason why these two situation would lead to the economic recession, and I will try to search about the reason hopefully by this weekend. I think I will make more clear about the relationship between prices and these factors after I become clear about the reason.

This was the major factor that most of the investors sold their futures out which caused the prices of future contracts bearish.

-U.S Dollars appreciated against the Swiss Franc

Jim’s lecture on Wednesday made me more clear about why the U.S Dollars appreciated would lead to trading prices decreased. When the U.S Dollars become more expensive, the importers will decrease their demand of buying from the U.S. Instead, they will seek resources from other export countries. Since the cost of transportation does not change between the U.S and import countries and the production of the U.S holds constant, when the demand of import side decreases, the price of the product will decrease in trading. This is the second major factor that causes the price to decrease further.

-Weather issues

I think the weather group of our class this week really made great contributions for us to do the decision since they all forecasted that the dry weather would cause the production of corn, wheat and soybean would increase, which implied that the price of them would decrease. However, I did not take this as a major issue when I was making my decision…T^T…

Minor Factor:

-China increases imports of soybeans 

Most of the investors overvalued the prices of soybean since if the demand of the import country increases, the price of soybean in trading increases. This factor actually affects the price of soybean and cause it to go up for a little bit. However, since this was only a minor factor to consider, so the price just rose for a while and bearish again which was controlled by the major factors.

-U.S continues to face crop difficulties of corn

Usually when an export country faces crop difficulties, it would decrease in their production. The supply of export country would shift up which causes the price to increase. I was falsely considered that this was a major issue to affect the price when I was doing my decision…

Since I was not able to analyze them correctly before, the factors actually caused me to do some wrong decisions in this week, so I think how to analyze them should be a more important thing for me to make better decision.

……………………………………………………………………………………………………………………………….

The decision that I did this week:

Sep 18, 2011:

One long position in corn at $697

One long position in soybean at $1362

One long position in wheat at $694

Sep 20, 2011

One long position in soybean at $1338

Resources:

http://www.dairyherd.com/dairy-news/US-grain-and-soy-review-Economic-jitters-trigger-broad-based-selling-130379563.html?ref=563

http://wiki.ubc.ca/Course_talk:FRE501

As it is the first week of playing the trading game, I am still very confused about how to estimate the open market price for the next day when I consider bidding a product. I realized that it actually requires lots of research about the polices, demands, supplies, weather conditions etc. in order to estimate the price closely to the open market price. I really hope that I could squeeze more time to read more news before I do my decision in the future…

About the first simulated bid of commodity futures in my life…

I could still remember how confused I was when the first time I was determining which position I should take on Sep 13…Since I am in the group of Technical Analysis, the only thing I know about the price is to look at the trends of prices of each product. And since I forgot I should read the other group’s reports before doing decision, it is quite a disaster for the prices that I bid for corn and wheat. According to the trends of prices of corn in CBOT, it actually drops or increases sharply on each day of the open market, so I decided to calculate the range of change of decreasing from a resistance point or the range of change of increasing from a support point. Also, I looked at the prices on each day of the open market at 9:30am in Chicago time zone, which is 7:30am in Vancouver. I found out that the price of corn may decrease to around 730 cents on Wednesday morning. I thought that the price of corn will gradually increase later after the open market price according to the trend, so I decided to buy it at 732 cents. And I used the same strategy to sell wheat at 707 cents…

Fortunately, I entered the corn market successfully with a price higher than the open market price, and I was not able to enter the wheat market since I sold it at a price higher than the open market price. However, I was not sure why I had profits in the Net Position. My margin balance on Sep 13 should be:

Losses from taking long position of Corn: (-2)(732-723)*50=-900

Margin Balance on Sep 13, 2011: 25000-900=24100

Sep 14, 2011

The strategy that I used for Tuesday looks stupid since I never consider about any factors other than the price trend…so on the second day of bid, I consider the strategy that Tasha taught me and other information I found on bloomberg.com…I always thought that I should wait for the price to drop to a price closed to the support point to buy in or wait for the price to increase up to a price closed to the resistance point to sell out, and I never thought that I should actually sell out product before it reaches to support level and to buy it back when it reaches the support level or the other way around to make a profit of the difference until Tasha told me about this^^!!!So I decided to use this strategy to bid a product…

According to the news that I read on bloomberg.com on Sep 14, 2011, Gerlach stated that the open market price of wheat will drop 3 to 5 cents on Sep 15, 2011. Although he also implies the supply of wheat will decrease due to the incoming cold weather condition in the U.S which causes the price to rebound later on, I still believe that the price of soybean will continue to decrease to a certain level before it bounds back since the trend of price of soybean is more steady than corn and wheat. We could observe that the price of soybean is still far away from its support point over a long period, so I decided to sell it before the price drops further. The way that I determine the price is to look at the open market price and the support point of the week. The open market price is around 1382 cents and the support point of the week is around 1380. I thought it will not drop below 1380 according to the trend, so I decided to take a short position of soybean at 1380 cents…

According to these strategies, I was able to get into the soybean market. The price that I bid was 0.4 cent lower than the open market price and earned some profits at the end of the day…

Profits from taking short position of Soybean: (2)(1380-1358.6)*50=2140

Margin Balance on Sep 14, 2011: 24100+2140=26240

For now, I just hope to do more researches about the prices, including any factors since I am very interested in this topic and really want to learn more:)

Hope all of us will enjoy the game lah…kkkkk…

Sources:

http://www.bloomberg.com/news/2011-09-14/corn-soybean-futures-called-lower-on-economic-concern-wheat-may-climb.html

http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/corn.html

http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/wheat.html

http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean.html

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