BY Nicholas Choy & Caroline Chiu

Motivation
Generally sulfur dioxide (SO₂) causes severe health consequences such as reduced lung function and chronic bronchitis which can lead to mortality; as well as negative economic impacts such as deforestation and acidification of water bodies and soils (SILAQ, 1998). Environmentally, SO₂ contributes to acid rain.

Poland is a main contributor of air pollution in Europe (Kiuila, 1999) and its SO₂ emissions level per GDP are two to eight times higher than average OECD levels (Blackman and Harrington, 1999). Therefore, Poland implemented environmental charges following the Polluters Pay Principle, with the following three objectives (Blackman and Harrington, 1999):

1)      To charge a rate that is high enough to encourage polluters to innovate rather than just paying the charge

2)      To relate the rate to the marginal damages caused by emissions

3)      To generate national revenue for investment in environmental initiatives

These objectives are created in conjunction to fulfill Poland’s short, medium and long term environmental goals in the National Environmental Policy. Poland refused to sign the 1985 Sulfur Protocol because their economy was dependent on mining and metallurgy at the time (Harris, 2007). But seeking membership in the EU prompted Poland to meet international standards. Economic hardship in the late 1980s reduced output, and subsequently SO₂ emissions, which initially made meeting reduction targets possible. Currently, Poland’s SO₂ emissions fees are one of the highest in the world.

(Paraschiv, Paraschiv and Ion, 2011)

Emissions by sector

The tables below indicate that power generation and industrial processes are the largest contributors of SO₂ (Kudelko and Suwala, 2003).

(SILAQ, 1998)

Timeline

1980                       Airborne emissions fee system established (Blackman and Harrington, 1999)

1990                       Fees too low– tax rate revamped (no significant reduction until revision)

1994                       Poland signed the Second Sulfur Protocol (Harris, 2007)

1995                       SO₂ “normal” fees = USD $83/ton (Blackman and Harrington, 1999)

1996                       Agreement between Ministry of Industry and Environment
Protocol – 2 targets: meet 2000 and 2005 limits
Second Sulfur Protocol (SSP) – meet 2010 limit in    2010 (Kudelko and Suwala, 2003)
(Kiuila, 1999)

Compliance cost, especially to power generation sector, was 1750m € to meet 2005 limits, and 6400m € to adjust to the SSP limits. (Kudelko and Suwala, 2003)

2011                       SO₂ fees = €123/ton (Paraschiv, Paraschiv and Ion, 2011)

Implementation: A hybrid system of permit and fee instruments. Facilities must have permits to emit SO₂ and emissions below a specified quantity incur a “normal fee” or tax rate. Those emitting above this standard level pay a penalty fee up to 10 times the normal fee (Blackman and Harrington, 1999); analogous to a two-tier tax rate system.

Distribution of permits: Firms must submit a comprehensive environmental impact analysis that includes detailed information such as production levels, production processes, fuel types, emissions to be discharged, and pollution controls measures (Anderson and Fiedor, 1997). Reports are supposed to be verified by a third party. Permits and rates are issued annually by the national environmental ministry based on the current ambient pollution concentration, and temporary permits may be issued as well for firms that plan to implement pollution control measures.

Penalty fees: Firms operating without permits are subject to a penalty fee that is double the normal fee and exceeding the limit will incur a non-compliance fee charged on each unit above the allowable level (OECD, 1994). Firms emitting above the allowed threshold pay increasingly higher penalty rates for every year they do not reduce emissions; 20% for the first year, 40% for the second, etc.

Monitoring: Monitoring system began in 1992, and was fully operational by 1997. Its role is to revise ambient quality standards based on data, as well as assign inspectors to be responsible in verifying facility permits, accuracy of pollution levels and calculation of charges (Anderson and Fiedor, 1997).

Inefficiencies and Distortions (Blackman and Harrington, 1999):

1)      Administrative

1. Verification was difficult as emission levels were self reported and monitoring and enforcement was weak. Limited enforcement due to political concerns: in 1992, 40% of registered air polluters were operating without permits, and only 20% of the penalty fees were collected
2. “Normal” fee payments counted as production costs and written-off as tax liabilities which reduce incentives to abate
3. Large, state-owned firms, like power plants, are often supported with subsidies and waivers, which reduce incentives to abate

2)      Exclusions

1. Coal widely used at thousands of small fixed-point sources since residential heating is exempt from the fee system.

3)      Distribution of Revenues

1. Fees channeled into regulatory activities and environmental investments which create perverse incentives for government to maintain the fee system as a source of funds.

Evaluation

Theoretical Underpinning

The ideal Pigouvian tax rate prompts polluters to internalize external costs and emit to the point where marginal abatement costs (MAC) equal marginal social damages. In a second-best world, two-tiered pollution tax rates have been implemented to deal with uncertain marginal abatement costs. In the context of Poland, although firms no longer face a uniform price which detracts from cost effectiveness (Bluffstone, 2003), it has been shown that the “penalty” rates promote abatement (Blackman and Harrington, 1999).  On the other hand because the “normal” the SO₂ tax rates are set according to political and revenue considerations, rather than abatement costs and social damages (Anderson and Fiedor, 1997), the tax serves more as a fund raising mechanism than a tool to reduce pollution (OECD,1994).

Cost Effectiveness

Revenues from the tax are earmarked for environmental investments in the sector from which the pollution arose. Poland’s pollution fee system drives 40% of its environmental investments (OECD,1994). In 1996, USD $126.67 million was collected from the SO₂ tax (Cotetea, 2011) and in 1997 total environmental funds amounted to $513 million which represented 0.4% of GDP (Bluffstone, 2003). 36% of these proceeds were distributed to a national fund, while 54% and 10% were allocated to regional and municipal funds respectively. It has been argued that the selection of projects do not always maximize net social benefits. Municipalities might invest in pollution abatement or control technologies that benefit their locales but are not cost-effective from a social point of view (Anderson and Fiedor, 1997).

 Impact

(Mitosek et al., 2004).

Coupled with stricter emissions standards the tax has contributed to reductions in SO₂ emissions. Power plants have reduced consumption of coal, shifted to coal with lower sulfur content, increased efficiencies by installing flue gas desulphurization technology (Ericsson, 2007) as well as investing in other abatement technologies (Kudelko and Suwala, 2003). The table below shows the internalizing of environmental costs and savings to firms by substituting biofuels for coal in district heating plants (Ericsson, 2007). It has been argued that in the region, Poland might be the only country where fees reduced emissions of SO₂ (Stavins, 2002).

Conclusion

Increasing the tax’s comprehensiveness by addressing the administrative distortions and including households would improve the cost-effectiveness and efficiency of the SO₂ tax. A fuel tax on coal would be the most easily administered solution for households but could have regressive effects. To improve monitoring and enforcement some of the revenues generated from environmental fees could be directed towards expanding the capacity of these institutions. However, this would come at a cost of reduced funds for investment in environmental infrastructure. At the time of the most recent study we could obtain, Poland was on track to meeting its obligations in the Second Sulfur Protocol. The tax played an instrumental role in this success. Of the three objectives motivating the tax there is evidence to suggest it successfully promoted investment in abatement technology and generated national revenues.

References

Anderson, G. D. & Fiedor, B. (1997). Environmental Charges in Poland. C4EP Project. Discussion Paper 16. Retrieved from http://www.cid.harvard.edu/archive/esd/pdfs/iep/edp16.pdf

Blackman, A., & Harrington, W. (1999). The Use of Economic Incentives in Developing Countries: Lessons from International Experience with Industrial Air Pollution. Resources for the Future. Discussion Paper 99-39. Retrieved from http://www.rff.org/rff/documents/rff-dp-99-39.pdf

Bluffstone, R. A. (2003) Environmental Taxes in Developing and Transition Economies. Public Finance and Management.3 (1), p. 143 – 175. Retrieved from http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID461539_code031026600.pdf?abstractid=461539&mirid=1

Cotetea. (2011, January 22). Study of pollution in Poland: SO2 emissions tax. Retrieved April 4, 2012, from http://www.bukisa.com/articles/441950_study-of-pollution-in-poland-so2-emissions-tax

Ericsson, K. (2007). Co-firing – A Strategy for bioenergy in Poland? Energy – The International Journal. 32, p. 1838 – 1847.

Harris, P. G. (2007). Europe and Global Climate Change: Politics, Foreign Policy and Regional Change. Northampton: Edward Elgar Publishing.

Kiuila, O. (1999). Economic Repercussions of Environmental Regulations in Poland: The Case Of The Second Sulfur Protocol. The Central and East European Economic Research Center at the Warsaw University. Retrieved from http://fmwww.bc.edu/cef99/papers/kiuila.pdf

Kiuila, O., & Sleszynski, J. (2003). Expected effects of the ecological tax reform for the Polish economy. Ecological Economics. 46, p. 103 – 120.

Kudelko, M., & Suwala, W. (2003) Environmental Policy in Poland – Current State and Perspectives of Development. Mineral and Energy Economy Research Institute.

Mitosek, G., Degorska, A., Iwanek, J., Przybylska, G., & Skotak, K. (2004). EMEP Assessment Report Poland. Institute of Environmental Protection in Warsaw. Retrieved from http://www.emep.int/assessment/poland.pdf

Organisation for Economic Co-operation and Development (OECD). (1994). Taxation and Environment in European Economies in Transition. Centre for Co-Operation with the European Economies in Transition.  Retrieved from http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=OCDE/GD(94)42&docLanguage=En

Paraschiv, S. L., Paraschiv, S. & Ion, I. V. (2011) The Profitableness of the Environmental Protection in a Thermal Power System by Setting the Optimum Level of the Environmental Taxes and Charges. Revista Thermotehnica. Retrieved from http://www.revistatermotehnica.agir.ro/articol.php?id=1156

Sofia Initiative on Local Air Quality (SILAQ).  (1998). Reduction of SO2 and Particulate Emissions. The Regional Environmental Center for Central and Eastern Europe. Retrieved from http://archive.rec.org/REC/Publications/SO2/SO2.pdf

Stavins, R. N. (2002). Experience with Market-Based Environmental Policy Instruments. Fondzione Eni Enrico Mattei Note di Lavoro Series Index. 52. Retrieved from http://www.feem.it/userfiles/attach/Publication/NDL2002/NDL2002-052.pdf

March 21st, 2012

BY Nicholas Choy & Caroline Chiu

Political Origin

In dealing with Singapore’s fast-growing motor vehicle population prior to 1990, several regulations such as road tax, import duty and registration fees were implemented (Tan, 2001). However, rising GDP allowed these costs to be affordable and an increasing number of vehicles on the road led to traffic congestion, which increases energy use, and air pollution (APEIS and RISPO, 2005). Since taxes on usage were inadequate a quota system was implemented to limit the quantity of cars. Effective in May 1990 the Vehicle Quota System (VQS) utilized an auction system to allow market forces to allocate permits for owning cars thereby reducing environmental externalities (APEIS and RISPO, 2005).

Timeline of Major Changes and Design of Vehicle Quota System (VQS)

May 1990 – Implementation of VQS

The objective of the policy was to maintain the growth rate (g) of Singapore’s vehicle population at 3% based on the total number of cars on the road (Tan, 2001).The public

Currently, Singaporeans who wish to purchase new vehicles must first successfully win a bid for a Certificate of Entitlement (COE) which is subsequently assigned to a specific car and is valid for 10 years.  At the end of this period, the owner may choose to renew the COE for another 5 or 10 years at the prevailing quota price (APEIS and RISPO, 2005). If the car owner chooses to sell the car before the period is over, the remaining life span of the COE would be transferred along with the car to the new owner (Tan, 2001).

At the inception of the VQS, bids were placed according to vehicle categories which were based on engine size and type. Sealed bid auctions were held monthly and each person was allowed to bid only once per period. A bidder was also required to submit a deposit equivalent to 50% of their bid price (APEIS and RISPO, 2005). For example if 100 permits are granted for a category, then everyone who bid below the 100^th highest bid price would fail to obtain a COE. The successful 100 bidders would pay the amount of the 100^th highest bid (Tan, 2001).At first COEs were transferable as long as they had not been used to purchase a new car (Tan, 2001). This created a secondary market which allowed the price and allocation of quotas to be determined by willingness to pay; a mechanism that overcame the uncertainty caused by sealed bid auctions.

Mid-1991

However, the secondary market created incentives for rent-seeking speculators, who had no intention of using the permits, to bid up the price and hoard the COEs. The public blamed speculation on transferability pushed quota prices to an “all-time high”; so, non-transferability was intended to stabilize quota prices (Tan, 2001). Since then, the policy was revised so that permits for categories 1-4 and 6 could not be traded within 3-6 months of the winning auction and had to be assigned to a new car within that time frame. Thereafter the quota essentially became a part of the car’s value and could be transferred if the car was resold but was subject to a levy of 2% of the car’s value.

1999 – Sub-categorization (Santos, Li and Koh, 2004)

The original categories were changed to counter the regressive effects of the policy. Theoretically, low-income groups and high-income groups bid in separate auctions so as to not force low-income buyers out of the market (Santos, Li and Koh, 2004).

2009

Government reduced the annual allowable growth rate from 3% to 1.5% due to the realization of the slower expansion in road infrastructures (Saad, 2011).

Results

The VQS has seen successes in meeting its target of limiting the growth of vehicle population to 3%

(Lee, 2009).

While other cities of similar development log average vehicle speeds of ~15km/h Singapore’s average speed of ~30km/h (APEIS and RISPO, 2005). The greater rate of traffic flow and increase in average speeds can lead to 50% more fuel consumption. In 1998 Singapore’s per capita energy consumption from road transport was 0.29 tons of oil equivalent (TOE) compared to 0.69 in Germany and 1.75 in America (Ang and Tan, 2001) As for air pollution, some pollutants may have increased, but overall, all pollution levels are within the standards of EPA and WHO (APEIS and RISPO, 2005).

Although the auction system is easy for the government to administer, the sub-categorization which was meant to protect the less wealthy created regressive effects (Koh, 2004) . In 2000 the COE of $36,684 for a Toyota Corolla contributed to its final selling price of $87,438. Whereas the COE for a BMW 523i amounted to $37,001 as part its final selling price of $234,000 (Ang and Tan, 2001). While an auction system can be efficient in establishing a price that equates perceived marginal benefits to costs, the differentiated categories built clumped the demand for those with less ability to pay (small vehicle category) to drive up quota prices relative to the price of cars. Studies on the effects of the non-transferability of permits on social welfare do not give a clear-cut picture. But this could serve the policy’s goal of limiting the total number of cars. Since the permit essentially becomes a part of the car, transferability occurs through the used car markets and are subject to environmental inspections. Since COEs expire, the car population should be newer relative to other countries. This should disseminate more fuel efficient models as technology and standards improve.  However the existence of the Open Category, which was exempted from the non-transferable clause, reduces social equity. Successful bids in this category can be used to purchase vehicles in any category and was implemented to improve the “allocative flexibility” (Koh, 2004) of the system. A large proportion are applied to large and luxury cars.

Conclusion

While the VQS is comprehensive in its application to all agents who own vehicles it is not cost minimizing and contributes to social inequity. Rising prices from the reduction of quotas have been accompanied by a large increase in the used car market. By 2003 the Singaporean government raised $23 billion from 156 auctions which it reinvested into transport infrastructure (Koh, 2004). The benefits from the provision and utilization of public transport from quota rents reinforce the VQS’ success in reducing the negative externalities from traffic congestion. One group which has benefited from the policy is the car dealers (who largely drove speculation in 1991) and profit from the used car market.

.

References

Ang, B. W., & Tan, K. C. (2001) Why singapore’s land transportation energy consumption is relatively low – Blackwell Publishing Ltd. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/j.1477-8947.2001.tb00755.x/pdf

Asia-Pacific Environmental Innovation Strategies (APEIS), & Research on Innovative and Strategic Policy Options (RISPO). (2005). Strategic Policy Options: Introducing Number Plate Bidding Systems. Asia-Pacific Environmental Innovation Strategies (APEIS), & Research on Innovative and Strategic Policy Options (RISPO). Retrieved from enviroscope.iges.or.jp/contents/APEIS/RISPO/spo/pdf/sp4206.pdf

Koh, T. H. (2004). Congestion control and vehicle ownership restriction: The choice of an optimal quota policy. Journal of Transport Economics and Policy, 38(3), pp. 371-402.

Lee, D. H. (2009). Sustainable Transportation Challenge in Singapore. National University of Singapore. Retrieved from
2050.nies.go.jp/sympo/090212/ws/…/2.1_LeeDer-Horng_ppt.pdf

 Saad, I. (2011) Vehicle Growth Rate to be Cut. Lowcarbonsg.com. Retrieved on March 20, 2012 from http://www.lowcarbonsg.com/2011/10/07/vehicle-growth-rate-to-be-cut-news/

 Santos, G., Li, W. W., & Koh, W. T. H. (2004). Transport Policies in Singapore. Research in Transportation Economics, 9, pp. 209-235. Retrieved from https://weblearn.ox.ac.uk/site/…/Santos%20et%20al%202004.pdf

 Tan, L. H. (2001). Rationing Rules and Outcomes: The Experience of Singapore’s Vehicle Quota System. International Monetary Fund. Retrieved from www.imf.org/external/pubs/ft/wp/2001/wp01136.pdf

BY Nicholas Choy & Caroline Chiu

The policy
Carbon policies began to emerge in the European countries in the early 1990s due to rising concerns of climate change with increasing greenhouse gas (GHG) emissions. In tackling the global climate crisis, Norway, the third largest oil exporter in the world, was one of the first to implement a carbon tax in 1991.

Figure 1. Norway tax rates vary from $15.93 (NOK 89) to $61.76 (NOK 345) per metric ton of CO₂ (Sumner, Bird and Smith, 2009, p.13).

How it works: The tax covers ~68% of CO₂ emissions (about half of Norway’s GHG emissions) and applies varying tax rates on each metric ton of CO_2. The rationale for the exemption of certain sectors was the argument of competition; the table below shows the sectors that are taxed and exempt (Sumner, Bird and Smith, 2009).

*NOK = Norwegian currency
1 Norwegian krone = 0.179937 U.S. dollars

Changes in energy intensityFigure 3. Change in energy intensity from 1990 to 1999 (in percentage) (Bruvoll and Larsen, 2002, p.8)
The negativity shows a decrease in energy intensity across sectors which contributes to the reduction of CO₂ reduction.Figure 4. Energy use and growth in energy use from 1990 to 1999 (Bruvoll and Larsen, 2002, p.9)
Higher fuel prices lead to a decrease of energy use in gasoline and heavy oil, but we see greater diversification in energy alternatives that do not generate as much carbon emissions.

The big change
In 1998, the government decided that the EIIs should be included in the carbon tax regime, so a quota commissions known as the “Norwegian Emissions Trading System (ETS)” (Gullberg and Skodvin, 2011) was proposed. The rationales for this change were 1) polluter’s pay principle and 2) half of each Kyoto participant’s commitment was to be implemented at home This proposed ETS would cover 90% of total GHG emissions; however, when it was actually implemented from 2005 to 2007, it only covered 10% of the GHG emissions. At the same time, Norway participated in the EU ETS where 40% of the carbon emissions were covered while EIIs received free emissions allowances, and petroleum industries continued to pay the carbon tax.

Evaluation of the Tax
Cost Effectiveness: the variation in tax rates across sectors creates differentiated prices for emissions leading to non-uniform marginal abatement costs, thus the policy is not cost minimizing (Gullberg and Skodvin, 2011). The graph below indicates the largest emitters of CO₂, the extractors of crude oil and natural gas, pay the highest tax rate (Bruvoll and Dalen, 2009, p. 17).

Distributional effects: Rather than employing income tax cuts, Norway channeled these tax revenues into general government accounts. In addition to revenues from offshore drilling licenses, Norway financed a pension fund worth $373 billion dollars or $80,000 for each of its citizens by 2007 (Sumner, Bird and Smith, 2009). Such a lump-sum transfer could address the regressive effects of a carbon tax as lower income groups would gain a larger proportion in terms of earnings relative to the wealthy. On the other hand, some would argue lump-sum transfers are less cost-efficient as carbon tax revenues can be used maximize efficiency gains by reducing the distortionary effects of existing taxes (Zhang and Baranzini, 2004).

Positive Impacts of Norway’s Carbon Tax:

• Technological Innovation: to avoid paying approximately $60 million in carbon taxes every year Norway’s giant gas and oil extractor, Statoil Hydro, has sequestered an estimated 1 million metric tonnes of CO₂ by investing in its $200 million Sleipner project (Sumner, Bird and Smith, 2009).
• Economic Growth with Improved Emissions Intensity: from 1990-2005 Norway’s per capita economic output increased by 47% while its per capita GHG emissions fell by 0.4% (Jaccard, Rivers and Keith, 2007).
• Compared to a simulated scenario without the tax, energy efficiency and substitution towards to less carbon intensive sources reduced emissions by 14% from 1990-1999 (Bruvoll and Larsen, 2008).

Failures of the Carbon Tax:

• Total GHG emissions increased by 15% from 1991 to 2008 (Sumner, Bird and Smith, 2009).
• Simulation results comparing with to without the tax scenarios suggest that from 1990-1999 the carbon tax only reduced emissions by 2.3% (Bruvoll and Larsen, 2008).
• MAC too low: Despite tax rates on transport and fossil fuel extraction over Norway’s tax rate, these sources of emissions have been on the rise from 1990-2006 and combined accounted for 52% of national emissions.  E.g. Statoil’s total emissions have quadrupled from 1990 to 2008 (Aboud, 2008)

(Hansen, 2008, p. 8).

Conclusion
As total GHG emissions rose by 15%, Norway’s carbon tax failed to achieve its goal of reducing emissions. Implementation of the tax is not cost-minimizing, so it is sub-par in terms of cost effectiveness. However the technological progress encouraged by the tax, especially in the field of carbon sequestration, and improvements in energy intensity illustrate a better scenario than if the tax had not been implemented.

References

Aboud, L. (2008, September 30). An Exhausting War on Emissions.  Retrieved from http://online.wsj.com/article/SB122272533893187737.html#articleTabs%3Darticle

Bruvoll, A. & Larsen, B. M.  (2002). Greenhouse gas emissions in Norway: Do Carbon taxes work? Statistics Norway, Research Department, Discussion Papers (No. 337), 1-28.

Gullberg, A. T., & Skodvin, T. (2011). Cost Effectiveness and Target Group Influence in Norwegian Climate Policy. Nordic Political Science Association.34, 123-142

Hansen, K. L. (2008). Official Statistics on GHG emissions – the Norwegian Model [Powerpoint Slides].  Retrieved from http://unstats.un.org/unsd/climate_change/docs/presentations/CCPresentation_StatNorway_session2.pdf

Jaccard, M., Rivers, N., & Keith, D. (2007, November 12). Carbon taxes, the economy and the poor. The Financial Post, pp. 1, 3.

Sumner, J., Bird, L., & Smith, H. (2009). Carbon Taxes: A Review of Experience and Policy Design Considerations. National Renewable Energy Laboratory, Technical Report (NREL/TP-6A2-47312), 1-30.

Zhang, Z. X., & Baranzini, A. (2004). What do we know about carbon taxes? An inquiry into their impacts on competitiveness and distribution of income. Energy Policy, 32, 507-518.

Week 10….already?! does this mean…finals soon?!?!?!? Oh no..

So how is everyone feeling??? It’s the last week for the trading game…such a weird feeling…will I feel empty in the remaining weeks because I don’t need to think about bidding anymore..?? hmm

Anyway, let’s talk about my strategy first

Disclaimer: trading game sheet went haywire again, so unable to check my open positions and margin balance. The numbers below are my guesstimates..will update once its back up.
At the beginning of this week…
Open positions: 3 long contracts in corn, 1 long contract in soybean, 2 short contracts in wheat
Margin balance: $40,975

Monday 14^th
Bids: offset with 3 short contracts in corn, and 2 long contracts in wheat
Monday is always the day I make my bets based on the expert info from each expert group, because they/we are EXPERTS! Anyway, although it is said that corn price could possibly hit record high due to tight stock, and that the US dollar was depreciating, I already read that production has been looking pretty good from other major corn producing countries and they are competing with US corn. Technical analysis group also stated that corn is following a downward trend, entering a bearish market. Thus, I decided to offset my long contracts. As for wheat, I didn’t have any specific reasons for offsetting wheat =s..although Black Sea Regions are still pretty up there leading the wheat exports, wheat prices really made me upset last week, so I wanted to abandon them this week.

Tuesday 15^th
Did not bid

Wednesday 16^th
Bids: 1 short contract in corn, 1 short contract in soybean
Needed to offset soybean.

Thursday 17^th
Did not bid.
Due to the crazy Euro crisis, the prices of all 3 commodities fell really low today! I was shocked and happy because I had 2 short contract in corn. If only I bid more contracts! Poop! Anyway, riding along the waves…I made about $1500 from that one contract today.

Friday 18^th
Did not bid.

Margin balance at the end of the game: approximately $43,000

So let’s get all cheesy and emotional now hahah….”walking down the memory lane”…okay, let’s not get too cliché here

So I still remember when the term just started and we were being bombarded with intense course outlines, high expectations, the coming of no-lifeness and such difficult instructions about the trading game (at that time). I was honestly super confused with what I had to do. I chose to be in the productions…but what?! Supply in producing countries…where in the world would I find info on that??? It was the first day of bidding, and I was with ellie…struggling to understand the basic rules of this game called…”futures market trading”…what is this thing all about?!?!?!

I thought the terms were really weird, why long and short? Bull and bear…huh?! It was definitely an experience. It actually felt good that everyone was panicking big time in the beginning because it was due to this confusion that I forced myself to go online and google everything about futures trading. I took down notes of the meanings of all the terms, the rules and harvest seasons, profits at the back of my notebook! Now when I look back, I just smile, because now I can memorize them backwards! HA!…i’m kidding, I remember I forgot how to bid after a long weekend…=.=

I’m sure I’ve only learned about 30% of what futures markets are all about, but I am really glad that we got to play this simulated game and it was on-going throughout the term. If it was only for a couple weeks, we wouldn’t have been able to apply what we have learned in class throughout the term into this game. Reading other people’s strategies was tedious at times, but when we look back, I think we all learned the most from reading other people’s blogs.

We only concentrated on 3 commodities and it was already so challenging to gather information, analyze and bid…I just cannot imagine that there is a whole world of commodities out there….how do pro-traders keep track?! @_@

Maybe my brain has selective vision hahah every week I TELL myself to look more into the technical analysis side of things, but once I see all those numbers and graphs, I give up..sigh. So throughout the term, I have mainly based my bids on the fundamentals of supply and demand. The expert groups were definitely helpful in saving time, but also having 20 brains to analyze was better than just having 1 brain. It was also nice to discover so many sites that has info on commodities, I’m pretty sure I will still be checking some of the sites from time to time to see what’s going on in the world.

So overall, this trading game was definitely a part of my life. I was telling my friends about soybeans prices, but they didn’t even care and they eventually got sick of hearing about soybeans. Hahaha

Last but not least, a biggggg shout out to Andrew and Javier!!! Woohooo!! Thanks so much for keeping on track with 20 students’ trading sheets…it must’ve been intense!! Thanks for all the help these weeks!

Now one last question….will twitter be forever quiet now that the game is over…??

Caroline

I..am..so…exhausted…

Energy level will be reaching its low soon….bad sign bad sign….

So this week was weird…

First, my open positions from last week were 1 long soybean contract, and 2 short wheat contracts.
Margin at the beginning of the week: $43,980

Monday 7^th
Did not bid.
Margin balance: $42,770

Tuesday 8^th
2 long corn contracts, successfully entered the market.

Corn price made a jump this day as I gained about $800. Also gained from the soy contract, but lost a lot from the short wheat contracts, thus I had a net loss.
Margin Balance: $41,740

Wednesday 9^th
1 long corn contracts, successfully entered the market.
Margin Balance: $41,455

Thursday 10^th
Did not bid
Considered offsetting my long contracts in soybean and corn since I lost about $1500 from these 2 commodities the day before. However, I did not as I got an advice from Deron on twitter to keep my contracts as it was expected that the prices would go up due to lower yield of corn and soybean in the US. I took the advice, but I actually lost even more the next day! Hahaha I lost approximately $2500 on this day. I think I did not do enough analysis for the market, hence I lost. I should’ve looked into the demand side because although US soybean and corn yields were lowered, there had been news stating that US exports had also substantially reduced. Therefore, the price went down rather than up, even if they went up, they wouldn’t have been big jumps.
Margin Balance: $41,285

Friday 11^th
Did not bid

Margin balance at the end of this week: $40,975

I think I was pretty lucky this week because I had contracts in each commodity which really reduced my risks. If I only went with wheat, I would’ve lost a lot in the beginning of the week, but due to my long corn and soy contracts, the loss was offset. In the next two days, I lost of lot from the long contracts of soy and corn, but thankfully, the gains from my short wheat contracts offset my loss. So overall, the change in my margin balance wassn’t considered too large, it definitely could’ve been worse.

This week was definitely weird because the prices went in complete opposite directions halfway through the week so it was very difficult to predict the prices. That was one reason I didn’t bid much or offset anything as I just wanted to have contracts in everything, and I didn’t know what to do really, so I decided to ride along with the market.

Caroline

Can’t believe its already week 8 into the program, its been 2 months everyone! Doesn’t time just fly by!! And surprisingly, only 2 weeks left in this trading game~will you miss this game in term 2? Will it be weird not having to check on commodity news everyday? Will it be weird not having to tweet, blog every week?? Hahaha

Anyway, back to what my strategy for bidding was this week…actually, it’s nothing very interesting. I have to admit that I haven’t been super active in bidding, all these projects that we have are draining my energy big time!!

So, let’s see…what did I do this week….mmmm…

Open position from last week: Short/wheat/2

Margin Balance = $42,030

Monday
Actually, to be very honest, I forgot about bidding until the mandatory Tuesday, so that was why I just left my open positions.
Surprisingly, I made the most profit on this day from the big drop in wheat prices.
Profit = $1620

Tuesday
The reason I kept my 2 open wheat positions throughout the week was because there was big news about the Black Sea Region having increased a large amount of supply of wheat. Not only this, specifically, Egypt, one of the world’s largest importers of wheat confirmed to buy a big amount from Ukraine. From a supply and demand perspective, this would definitely compete with US wheat exports, thus lowering US wheat price. Also, wheat news made a couple of headlines throughout the week, indicating that US wheat price had been pressured to a downward trend.
Profit = -$180

Wednesday
Hmmm..should I bid for corn or soybean? That was the question? I sought opinions from other classmates, some told me to go long on corn, but I had a feeling that it wouldn’t be the best decision because corn prices tended to fluctuate a lot, so I have always found it difficult to bid on corn. I decided to go long on soybean because production in the states wasn’t too optimistic, and the technical analysis group stated that the soybean market seemed to be in a bullish territory. I was correct as I made a profit of $220 from soybeans.
Profit = $880

After this day, I did not bid again for the week. As you can see, I made negative in the next 2 days due to my laziness and neglecting.

Thursday
Profit = $30

Friday
Profit = -$400

Margin Balance = $43,980
Profits this week = $1950

I’m pretty satisfied with my balance right now and the profits I made this week as I made -155 profits last week, so it was a big improvement!

Just a little thought: If US wheat demand decreases, wheat prices will decrease as well. Given that corn and wheat are substitutes; would farmers switch to growing more corn instead? However, EU corn exports are competing with US corn exports, giving pressure to US corn price. But what we saw this week what the corn price fluctuated a lot, I’m trying to think through why that was….Anyway, I know this section was pretty useless because I basically said nothing at all..but I went to see Jim today, and these were some things he told me think about now that we’ve learned the foundation of substitution.

Hopefully I will be able to learn more in the last 2 weeks.

Have a nice weekend!

Caroline

We only took a week off from trading and blogging, but it felt eons! Definitely feels like it’s been more than a week!

Strange…when I had to bid again at the beginning of this week…I actually had to look at my notes to check how to bid properly again…going short/long/offset….

I did not have any open positions from last week because I didn’t want to risk losing while not paying attention to trading, so this week I started from scratch again!

I wrote the expert blog this week, and I paid extra attention to wheat because there was much information on the Black Sea Region having a lot of supply of wheat, so much that they need to plan how to export it. With this in mind, I really expected U.S wheat to fall because of high production elsewhere, and that demand for wheat from these regions will increase due to lower prices.

I only bid twice this week, both times going short in wheat.

Wednesday 26^th
Short/wheat/1 @ 413.3
entered the market, and made quite a lot of profit because wheat fell by approximately 25cents that day.
profit = $1095

Thursday 27^th
Didn’t bid or offset, sadly, wheat price went up by almost how much it fell yesterday, so I made a loss today.
profit = -$1230

Friday 28^th
Still having faith that wheat prices would fall, especially after a big jump, I bid another short wheat contract at 644.8. I entered the market, but the price didn’t drop at all.
Profit = -20
thankfully, the price didn’t fluctuate that much so I didn’t make a huge loss.

Total profit this week = -$155

Short blog this week! Have a nice weekend everyone!

Caroline

A very depressing week for me.

Even though it was only 3 days, it felt like a really long week….Personally, I felt like everything was raining down on me this past week…I think it was the assignment and cases, and the stress from thinking about the midterms for next week. I’m really nervous about the midterms….especially Jim’s….

Anyway, sorry, a little late in blogging this week. I have to admit that I haven’t been as engaged and focus on bidding compared to the first few weeks, again, just too much to do so I didn’t really have time to do research and bid.

This week made me realized how lost I was without having the expert blogs in helping me decide what to bid on. It was like a lost of direction, and it was a lot of work to research on every aspect by myself. So this week, I only focused on supply and demand (again).

Open position from last week:
Short/soybean/1
Long/corn/1

Soybean: looked at supply. News on Oct. 10 stated that soybean yield in 2011 has been quite disappointing. The harvest season for soybean is almost over, but yields have been below average, especially in the U.S. due to the heavy rains during June, and some areas have started the planting season late; hence, the soybean supply isn’t very optimistic. So I decided to offset my short contract in soybean.

Corn: I decided to keep my long position in corn. At the beginning of the week, I read that the USDA reported a fairly optimistic progress for corn, but commodity specialist say that the USDA might have been exaggerating the number as corn yield is not has high as it has been stated, also, corn harvest has slowed down to poor harvest. Then in the middle of the week, big news was released stating that China has confirmed their large order or corn, so I assumed that corn futures prices will keep going up. However, near the end of the week, it was also reported that private exporters have increased their exports and U.S has cut exports, so I wonder what will happen to corn prices next week.

Wheat: Simply based my bidding strategy on the news about record high wheat production and high ending stocks, even though wheat exports are up as well. Also, Wheat prices made a huge jump on Tuesday, and I predicted that the prices will make a huge dive again on Wednesday, so I decided to bid short for Wednesday. My prediction was right and so I made 1700 from wheat. I was worried that it might fluctuate again, but I held firm my stance and stayed in short

This week I made 2000 from my long corn contract, and 1900 from my short wheat contract.

My current margin balance is $42,135.

As of the end of this week, I currently hold 1 long corn contract and 1 short wheat contract.

The coming 2 weeks will be super busy I feel, but hopefully I will be able to put a little bit more time into the game in the coming weeks.

Have a nice weekend everyone!

The exhausted Caroline

Open positions from last week:
2  long wheat contracts

What an exhausting and un-dynamic week for me!! I’m sorry Andrew, but I must admit that I did not bid much this week…=(

Today, Thursday 5^th, spent 4 hrs after class to understand and work on Jim’s assignment…it has used up all my brain power, so I have decided to not bid tonight and just leave my contracts as they are right now.

NOTE: my futures trading game sheet is EMPTY right now, so I can’t check my margin balance or anything. Will update blog once its fixed.

As of today, I have 2 long wheat contracts from last week, 1 long corn contract that I bade on the 5^th, and 1 short soybean contract on the 6^th.

Jim mentioned that he didn’t want us to recklessly bid and have too many open positions; I decided to just bid 1 contract for each commodity this week.

So this week, I finally decided to try and understand the exchange rate expert blog. They stated that the US currency is appreciating, which means US commodities would be expensive to other countries, so this would lead to a decrease of demand in US imports. Just based on this information, I would expect prices to decrease.
Last week Friday, US announced that they have an extra 200 million bushels of corn, which I thought would keep the prices down for corn. However, I also read that China will be demanding a record high amount of imports, so based on that, I assumed corn prices would rise; hence, bade long on corn.

Soybean was very simple, I based my assumptions on the wiki expert blogs. Demand group stated that there is record high production with decreased global demand, our group concluded that soybean supply will be increased because harvest just started, and finally, technical analysis group said that soybean market is still quite bearish. Thus, based on all these information, I decided to go short on soybean.

WILL UPDATE PROFITS WHEN GAME SHEET BACK TO NORMAL!!

Have a WONDERFUL long, long weekend everyone! Get a good rest and read those 80-paged M&E Reports =)

Happy Thanksgiving and have delicious turkey dinner and pumpkin desserts!!

Caroline

This week was a very dynamic week for me as I made a bid every day (something which I have not done in the past 2 weeks).

During our expert group meeting, we didn’t really have much to discuss about because the production news for this week seemed pretty dry. We mainly based our conclusions off the numbers of the USDA report where we compared last week’s yield to this week’s. We expected:
– Corn prices to go down because of higher yield
– Wheat prices to go down because harvest in the Black Sea regions reported high supply
– Soybean prices were neutral because harvest season just began, so we weren’t sure what would happen.

Sept. 26^th
Did not bid, kept my contracts from last week.
Short/corn/1
Short/wheat/1
Long/soybean/1

So this week I decided to go all out and bid in each commodity with more contracts. Let’s see what happened…

Sept 27^th
For starters, looking at the trend and talking with classmates, I believed that the prices will be up for the beginning of the week because traders on the CBOT were active and everybody was trading. So I bid,

Long/wheat/3 at 652.4 => profit $370
Long/corn/3 at 652  => profit -$180
Soybean stayed the same => profit $170
Total profit for the day = $360
Margin after clearing = 27,670 + 360 = $28,030

Sept 28^th
Honestly, I didn’t have much of a strategy for the this day. I just thought, since the prices went up in the past few days, I had a feeling that prices will drop after a big spike. That seems to be the cycle that I have observed over the last 2 weeks. And it matched with what we learn in FRE 502/501, that prices fluctuates in cycles, going up down up down…..

So I bid,
Short/wheat/5 at 654  => profit $1890
Short/corn/5 at 649.1  =>  profit $2465
Short/soybean/5 at 1260  => $7170
Total profit for the day = $11,525
Margin after clearing = 28,030 + 11,525 = $39,555

I was extremely ecstatic because my net position had never been above 30k. I made a lot of money from the significant decrease in soybean. I didn’t have much rational reasoning for this, but soybeans had always seemed to be the commodity that dropped the most during bearish market.  I think  because harvest is just starting, so there is a higher supply of soybean in the market.

Sept 29^th
I looked at the market after it closed to see how the prices were doing. Surprisingly, the prices of all 3 commodities were going up! I was really scared because I had so many contracts in short. That day was also a very busy day for me, so I did not put much thought into what to do, so I tried to offset whatever I had.

So I bid,
Long/wheat/5 at 629.2 => profit $3910
Long/corn/5 at 625  => profit $1580
Long/soybean/1 at 1222  => profit -$1720
Total profit for the day= $3770
Margin after clearing = 39,555 + 3770 = $43,325

Thankfully, because i offset my short contracts,I made some money this day.

Sept 30^th
For the last day, I thought I was pretty set and didn’t have to do anything. However, when I checked the prices after market closing, the prices completely changed again!! I was so frustrated because I just DIDN’T UNDERSTAND WHY?!?!?!? And I wasn’t able to find much news about it, after such a dynamic week of bidding, I decided to just offset what I had in corn and soybean because those seemed to have fluctuated the most, and I kept my wheat contracts.

So I bid,
Didn’t do anything to wheat  => profit -$4500
Short/corn/2 at 634  => profit $160
Long/soybean/5 at 1233  => profit -$750
Profit of the day = -$5090
Margin after clearing = 45,325 + (-5090) = $38,235

Sigh…i should’ve offset those wheat contracts too…lol..”if only..”
I LOST 5k in wheat! It was crazy! I woke up at around noon, and I was casually checking the prices on my phone, and BAM! Prices were all in red, dropping at an average of 50cents!
I thought I was looking at the wrong site!! And right beside the price table was the news about US having an extra stock of corn!! So that was the reason! If only we had known about that earlier….
But one thing I did not understand was why would the prices of soybean and wheat also drop due to the extra corn stock?? Was it another issue to do with the EU??

—————————————

I will be reading up market closing reports to gain some insight into why the prices were like this. I am glad I made 10k earlier in the week, so I was able to still have a total gain after losing 5k on Friday.

So this week, I made a total profit of $9785! Which is a lot compared to the 2k I made in the last weeks each.

I still feel that my strategy is quite instinct-based, and I depend a lot on discussing with classmates. Hopefully in the coming weeks, I can decide on what to bid based on some real research and analysis.

What i learned this week…
After this dynamic week of bidding, i think bidding high number of contracts is actually less risky than just going 1 contract each day. It’s less risky, and you have a higher chance of making more money. I think it was a good idea that i bid 5 contracts each when i was quite sure of what the market was going to happen, that way i could make a bigger amount of money. Even later in the week, when the prices are less predictable, I am able to “afford” losing more. Not that anyone would want to lose, but at least my margin won’t be lower than what i started off.
|I know i mentioned that i would focus on more the long-term, and won’t change my bids due to the daily changes. And this week, i did the exact opposite, but hey~it didn’t turn out bad. hahah I think i’m just too risk-averse to wait and see…if i see something sketchy going on, i have to change it right away.

Anyway, I would like to see my margin pass the 40k mark next week!

Thanks for reading, sorry, don’t have anything too insightful~ ^^”

Caroline