Dear Blog,

This week was a really challenging week for me to predict the price trend. Even having read the expert blogs and done my own research, I had a hard time understanding certain articles, and some were very conflicting. I thought I understood it better from first week, but the more I read the more confused I get!

For corn, I read the article about China releasing an “unspecified amount” of corn from stock reserves to meet the domestic demand, thus they won’t need to demand corn from U.S. This piece of article really ‘stood out’ to me, so I believed that prices of U.S corn was going to fall for sure. However, looking at the prices for Monday and Tuesday, prices were actually rising and that really confused me, I really didn’t know what to bid on. In the end, I went with my instincts still believing that prices would fall, so I bid 1 short contract for corn at 693. I even had a hard time deciding on a bidding price because the range window was quite small. Fortunately, my predictions, or more like my instincts, were correct. Corn price did fall!

On the 21^st, Demand group confidently said that all 3 commodities’ prices were going to fall, so I decided to be brave this week and bid a total of 2 short contracts for corn, 2 short contracts for wheat, and 3 short contracts for soybean (1 to offset the long contract).

In shock, the prices of all 3 commodities on the 22^nd fell like CRAZY. Each fell on average about 30-40cents each, so obviously, my bids did not enter the market at all, which was very unfortunate, or I would’ve made a lot profit. On the other hand, I lost money from the long contract on soybean (thankfully not a lot because I only had 1 contract), but my gains from the 2 short contracts of corn and wheat covered the loss. However, the point is I had no idea, even now, why the prices fell so much in that one day. Everyone was discussing this problem, but none of us could really answer it. I’m thinking it was probably due to the price decrease that everyone is offsetting contracts, thus encouraging the fall. Normally, I would immediately offset my long contract, but I am predicting that after such a great fall, prices will be rising soon.

 What I learned this week:

 Phew! What a dynamic week, I felt that I was pretty active in bidding, but because none of my new bids actually entered the market, I only had 3 contracts by the end of the week haha.

Although our bidding is quite short-term because we are focusing our trading by week, I was too focused on the immediate short-run as in what happened on that day. For example, if soybean prices are falling that day, I would immediately bid short contracts, but if the prices end up rising the next day, I would bid long contracts to offset. My decisions were too dependent on what happened on the day of, in which I neglected to think about what would happen in the next couple days. Just like this week, if I had been more analytical and not offset my short soybean contracts, I wouldn’t have lost money, but I did because I was too focused on daily prices. So having a long run perspective is what I will be learning to do for next week.

Another concept I learned this week was the process of calculating offset contract profits. I was confused for the whole week because my calculations did not match the balance sheet of Javier’s.

Lastly, this may sound really dumb, but I have only figured out that we are supposed to look at the U.S prices specifically. At first, I was not specifically focusing on any country’s prices because I’ve always thought that we were looking at prices in the world market, so I did not think much of the effect of lower demand for U.S commodity. But now that I know, I think my strategies will change slightly. Also, I’ve been focusing too much on looking at demand/supply that I’ve been neglecting the technical analysis group’s opinions. I would like to start understanding this analysis because I believe it is a valuable resource in predicting price trend, especially the concept of Moving Average.

Profit Calculation:

Sept 19^th
Short/Soybean/1: 1*(1358.6 – 1336)*50 = 970
Margin after clearing: 26,780 + 970 = 27,750

Sept 20^th
Short/Soybean/1: 1*(1336 – 1338)*50 = -100
New bid for Short/Corn/1: 1*(693 – 690.2)*50 = 140
Margin after clearing: 27,750 + 140 – 100 = 27,790

Sept 21^st
Short/Corn/1: 1*(690.2 – 685.6)*50 = 230
New bid for Short/Wheat/1: 1*(680 – 666.6)*50 = 670
New bid for Long/Soybean/2: [2*(1337 – 1338)*50] – [1*(1338 – 1320.4)*50] = -780
Margin after clearing: 27,790 + 230 + 670 – 780 = 27,910

Sept 22^nd
Short/Corn/1: 1*(685.6 – 650)*50 = 1780
Short/Wheat/1: 1*(666.6 – 633.6)*50 = 1650
Long/Soybean/1: 1*(1283 – 1320.4)*50 = -1870
Margin after clearing: 27,910 +1780 + 1650 – 1870 = 29,470

Sept 23^rd
Short/Corn/1: 1*(650 – 638.4)*50 = 580
Short/Wheat/1: 1*(633.6 – 640.6)*50 = -350
Long/Soybean/1: 1*(1258 – 1283)*50 = -1250
Margin after clearing: 29,470 + 580 – 350 – 1250 = 28,450

Total profit week 2 = 1670
Margin Balance as of week 2 = 28,450

Pretty glad that I still made profit this week, hopefully I can make more next week!

Caroline

Because this was the first week, i had a difficult time reading and analyzing each expert blogs, and it was hard to determine the magnitude of each report. As I am in the productions and crop reports group, my bidding strategy was mainly based on the information I researched on and from the information from the demand group. In the end, the fundamental concept of market price determination is from demand/supply.

I first looked at the information from the USDA crop report on corn and it was forecasted that the supply of corn would decrease in the biggest production country, US Midwest. Immediately, i assumed that there would be a shortage in corn supply, so the prices would go up. Most importantly, the stock-to-use ratio was very low, 5.3%, which was associated with price increase. At first, i was certain that i was going to go long for corn expecting a big rise in prices, but i was looking at the prices over the past few days and i realized that there was a lot of fluctuation in the price which lead to a very inconsistent price trend. I am risk-averse so i preferred not to bid on corn until there was a steadier price trend.

As for Wheat and Soybean, I could say that i was quite sure that the prices of both commodities were going to fall as the economy predicted that there would be large supply in the market. Still, i chose to bid on only one commodity just to be safe, and in my perspective, soybean had a steadier price decline trend than wheat.

So I bid 1 short contract on soybeans. I knew to enter the market, i needed to bid within the Low-High range of the next day, and for a short contract, i should bid just under the high to maximize profit. I looked at the High’s of the past few days and calculated about how much it dropped each day, then i predicted the high of the next day and entered a bid price a couple cents under it.

Aside from reading news and blogs, i realized it was very important to share and discuss with my classmates. One person was more familiar with corn, one person was more familiar with wheat etc, so when we talked to each other, we were able to feed each other info and just fill in the holes in our knowledge.Of course, we confused each other even more at times, but I felt that i learned more from talking to them than from reading on the websites. Great thing was, everyone was not greedy with maximizing own profits and shared their thoughts! haha

Overall, it was a very challenging week as it was my first time learning how to trade in a futures market, and it took me about 1 whole day just to understand how to bid the prices to enter the market. But honestly, there are still many confusions about this game, so hopefully I will learn as I play and become a pro! haha =)

Let’s make some moola! $$

Here is my profit summary of the week.
I only bid on soybean. 1 short contract for sept.14 (at 1391) and another 1 short contract for sept.16 (at 1370).
BUT, my 2nd short soybean didn’t enter the market because my bid price was too high
Closing prices:
sept. 14 – 1382-6
sept.15 – 1358-6
sept.16 – 1355-4
Profit:
sept.14: 1x(1391-1382.6)x50 = 420
margin after clearing = 25,000+420 = 25,420

sept.15: (1382.6-1358.6)x50 = 1200
margin after clearing = 25,420 + 1200 = 26,420

sept.16: contract 1 (1358.6-1355.4)x50 = 160
margin after clearing = 26,420 + 160 = 26,580

(Total profit for the week = 420+1200+160 = 1780)

Caroline Chiu

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