Although last week had the long weekend, I did not actually feel it was a long weekend since the assignments made me feel frustrated. Until today, although I just handed in Rick’s assignment, I did not feel relaxed at all since there will be more stuff coming up this weekend…>”<…
Actually I feel pretty good to write blogs every week if it is not that busy since I can always summarize what I have learned from the week. I did not know from when, I started thinking that I should not waste of my life of doing something nonsense. I should at least learn a little bit from the things that I have done. So when I feel frustrated, I usually think what it has brought to me. It does not have to be substantial, but at least, it could make myself feel better. However, for this week, I almost forgot what I want from my life. I was too focusing on the stuffs that I learned from classes…maybe I was just feeling too busy…
Oct 11, 2011
Since I was busy doing my assignment today, I did not have time to read any news. And today I suffered a disaster of my margin balance again…However, I still want to review the news and do a little bit analysis although I did not bid or offset:
Complicated relationship between Ethanol and Corn production:
On Oct 10, 2011, after the German Chancellor and French president announced that they would deliver a plan to settle the Greek debt crisis, the price of Ethanol and Corn increase, which the price of Ethanol increases 9.5 cents, and the price of Corn increases 5 cents. When the price of Ethanol increases, suppliers would like to produce more Ethanol since they would like to sell them at a higher price. Since it requires Corn to produce Ethanol, the demand of corn will increase which causes the price of corn to increase. This is a positive relationship between the price of ethanol and corn. However, I just read a news today which indicated that the price relationship between corn and ethanol should be more complicated that we think. Since if the price of Ethanol increases, the supply of Ethanol will increase too, so it will probably drive the price down again.
I did a little bit analysis about this since I did not focus any news about ethanol before, and I did not realize that the price of ethanol could have effects on the prices of corn. So I think I should start focusing on the demand side and supply side of corn to figure out more. Also, since Economists are still doing research about the complicated price relationship between ethanol and corn, the relationship might be complicated than we think, so we should pay attention to it and cannot overvalue the effects of ethanol on corn.
Reference: http://www.good.is/post/chart-the-complicated-relationship-between-ethanol-and-corn-production/
Corn (did not bid): (1)*(600-645)*50=-2250
Soybean (did not bid): (1)*(1158.2-1235.4)*50=-3860
Wheat (did not bid): (1)*(607.4-660.6)*50=-2660
Margin Balance: 140-2250-3860-2660=-8630
Oct 12, 2011
Since the price from yesterday increases sharply, I felt that it may be a good time to take long contracts due to yesterday’s news (since we can only depend on the news from Oct 11 to make decisions of Oct 12), so I decided to offset my contracts and take 1 long position for each of the three commodities since the traders seem to start take long position in such a low price in the market due to yesterday’s situation…
However, I forgot to consider that the amended USDA report was going to come out today…I knew that there will be big effects on prices, and the news from last week indicated that the amount of harvest of corn, soybean and wheat are underestimated on the last USDA report. Since the harvest is underestimated, the supply of corn, soybean and wheat should increase and indicated in the new USDA report, so the price of these three products should decrease. As a result, the prices of these three products turn out to decrease today. Since the price surged yesterday, it covers the slump of the price of overharvest, so the price did not decrease that much today.
Corn (2 long contracts: 1 long contract, offset; 1 more long contract)
(-1)*(645-645)*50=0
(-1)*(645-640.6)*50=-220
Soybean (2 long contracts: 1 long contract, offset; 1 more long contract)
(-1)*(1235.4-1235.4)*50=0
(-1)*(1235.4-1239.4)*50=200
Wheat (2 long contracts: 1 long contract, offset; 1 more long contract)
(-1)*(660.6-660.6)*50=0
(-1)*(660.6-626.6)*50=-1700
Margin Balance: -8630-220+200-1700=-10350
Oct 13, 2011
The prices of Corn, Soybean and Wheat became a little bit fluctuated again, although holding long contracts are at risk for me since Greek debt crisis would not be settle down for a while, I decided not to bid since small factors might affect the price sometimes and may earn a little bit from it. Since I have lost large amount of money, how about try a little bit more…although I know that sometimes I will be wrong…
Corn (did not bid): (-1)*(640.6-638.2)*50=-120
Soybean (did not bid): (-1)*(1239.4-1257)*50=880
Wheat (did not bid): (-1)*(626.6-618)*50=-430
Margin Balance: -10350-120+880-430=-10020
Oct 14, 2011
Since next week we have two midterm exams coming up and may not have time to read news or bid, and I am afraid that next week the price will fluctuate frequently, I decided to offset all of my long contracts of corn, soybean and wheat.
Before I usually use the same price as the closing price from yesterday to offset, just want to be more safe and do not want to lose more money. But now I want to try a little bit more risk. Since I am offsetting long contracts by taking short contracts, I am choosing to bid at the price lower than yesterday’s closing price and higher than the estimated low price today. Actually it is really hard to determine the estimated low price, so I just compared the price changes of low prices of yesterday and the day before yesterday, and then add this change to the low price of yesterday. After adding this change, the estimated low price cannot higher than the closing price from yesterday. This will be a little bit risky since I might not be able to sell them out tomorrow, but it is worth trying since I may be able to earn a little bit money from this.
Corn (1 short contract, offset): (1)*(624-638.2)*50=-710
Soybean (1 short contract, offset): (1)*(1247-1257)*50=-500
Wheat (1 short contract, offset): (1)*(618-618)*50=0
Margin Balance: -10020-710-500=-11230
From this calculation, I found that I did a wrong strategy last night. Actually I should choose a price higher than yesterday’s closing price and lower than today’s highest price!!!Make a stupid mistake…>”<…LOL…aii…complicated feelings…but at least, finally I learned about how to estimate the price, and hopefully I will not make the same mistake again^0^…
When I come back to my blog the week after, I want to take a look at the price spread between Dec and Mar’s futures prices to see whether we can use the stuff that we learn from class to analyze…
Now, I think we should start focusing on the two midterms for the next week.
Good luck for all of you guys!~
YAN, I think you did try your best to control your loss this week. Just as mine, last week, I have eight hundred in my balance, but this week, they all turned into negative. It’s pretty hard to predict the trend, especially when we were all busy for the midterm stuff. I think during the mt period, I’ll still play the game for a break or for fun. No an addict of bidding, but just like a habit, check the price, do the bidding, and make them clear out of mine when I’m doing other stuff. haha~I think we are all now kinda get used to this game but not super expert to bid the right price to make the right decision, but we all enjoy the experience learnt from here. haha! Good luck to your exams!
Tasha, thank you for commenting!~
I think you really get used to look at the prices everyday from the cmegroup.com…haha~i think this is good habit, I want to try to have that habit too…but i dont know why when I went to look at the data, I will feel dizzy since I have not got used to looking at numbers and not sensitive enough for the number…>”<...and when each time I looked at them, I always have to think for a long time whether my bidding price is low or high enough to get into the market...aii...but still, I think get used to read news everyday and count profits everyday will make us more sensitive about the numbers, and that's a very important part of learning from bidding~keep up the good work Tasha!~ Good luck for your exams too!:)
Hey Yan!!Im in the airport now waiting for my bf coming but my mind is still stucked by trade game haha!
Yes.seem this week everyone starts to pay more attention to the link between ethanol and corn,for me its really confusing.since the corn is the input for ethanol,i heard if ethanol price goes up ,the corn price would decrease since ppl know its benefical to grow my corn for ethanol production thus,more supply which drags down corn price.Its really not what we usually think…..still im quite confused about the linkage between these two stuff.maybe we can talk about it after this midterm..
good strategy to offset long contract.i think its always smart to keep short one than long ones!
good luck on ur exam!
Hey Fancy, feeling excited for your bf’s coming?haha~
yea me too I am just trying to start looking at how ethanol affect the prices of corn from this week since I found that there are lots of news about ethanol in bloomberg.com this week…I think you can take a look at the website that I took as reference, it states about the relationship about ethanol and corn. Here is the website: http://www.good.is/post/chart-the-complicated-relationship-between-ethanol-and-corn-production/
Also, I just found out that Hossein’s comment below makes me more clear about the relationship between, you can take a look at it too. If you are still not very cleat, I can draw you a diagram after midterm and let’s discuss about it:)
Hi Yan!
Just about relationship between the prices of ethanol and corn, I guess you should think about short run and long run effects. As you said, in the short run, there is a positive relationship between the price of ethanol and corn, but I think it’s not a stable price. So, in the long run the price of ethanol will decrease, because of an increase in supply, until it become stable.
Good luck
Hi Hossein,
Thank you very much for your answer of replying my blog last week~I am so sorry that I think I made a very confused question for you…since I was still quite confused about the factors until now…
And your comment above also makes me more clear about the relationship between the price of ethanol and corn!!!I should take them and make them in long term and short term consideration. This really helps. Thank you again!~
And good luck for your midterms next week!~