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.

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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