It is a huge relief that we have finished the mid-term, good luck guys! Enjoy this weekend…

Getting to my point, after having a week rest and reviewing of FRE501’ mid-term, I could clearly understand the arbitrage, hedge, basis, price spread and so on, to some extent, which could give me ideas for improving the strategies of trading game. Based on the knowledge, it seems like that I have been more confident to the game, but indeed it did not go well.

First bid on 25^th October, Tuesday

Long 1 contract for corn and wheat at 647.5 and 635.2 respectively, short 2 contracts for soybeans at 1232

Calculation

The loss from corn is (647.5-637.5)(-1)*50=-515 and wheat is (635.2-619.4)*(-1)*50=     -790. The gain from soybeans is (1210.4-1232)*2*50=2160. So the net balance increases -515-790+2160=855, but from previous week it remains two long contracts which was trying to offset but fail. It is (1225.4-1210.4)*(-2)*50=-1500, therefore the net balance should finally gain -1500+855=-645. The net balance on 26^th would be 21345-645=20700.

Strategies

Chinese demand for corn is far higher than the 182m tons being revealed by official US data, which signaled that the corn price would go up because of huge import demand for corn in China. In the meantime, since the fast moving average is above the slow moving average (from the technical analysis), I predicted the price trend of wheat is upward. As for the soybeans, I wanted to offset the contracts totally. On the other hand, the fast moving average is below the slow moving average thus it should be in bearish
territory.

Second bid on 27^th October, Wednesday

Short contract for corn at 647

Calculation

The profits from corn is (637.2-651.4)*(-1)*50 + (647-651.4)*2*50=270, and from wheat is (619.4-644)*(-1)*50=1230, so the net balance on 27^th will be 1500(1230+270) +20700=22200.

Strategies

Before the bid, I found one piece of information on 26^th, October that is China had released 3.7 million tons of corn from the government reserves into the market. It means that China will reduce the import from US, so I predicted that the corn price
would decrease. However, the price went up even a big jump, which made me a big
loss.  The reason after that I checked is the reduced concern demand became weaken after European leaders agreed on a plan to curb the region’s debt crisis.

This week the lesson from the loss for corn on 27th is that improving the ability of collecting information should be more critical for me. Otherwise the loss like that will still happen. Anyway, Halloween is coming… hope everyone has fun…

Lots of tasks this week made me much exhausted, what’ worse, I got a big loss on Monday…

However, based on my strategies, I gained the money back from 15,125 to 25,920.

First bid on 12 (gain 7,450)

Two long contracts for corn at 629.7

Five Long contracts for soybeans at 1230.6

My decision was that I went long for corn and soybeans even though I missed the big jump in futures prices on Monday, because the market expects China to buy corn this week to take advantage of a steep decline in global prices, which will potentially increase the corn price because of the following tightened supply. Also Russia had decreased their corn exports in order to keep inventories on their domestic market, which still made the corn futures bullish.

There were two reasons for taking five long contracts for soybeans. Firstly, I wanted to offset my soybeans contracts (maybe not insightful). Secondly, as China increased purchases of soybeans and soybeans oil after global prices slumped, it will probably rise the soybeans price.

Second bid on 13 (gain 3,345)

Short for corn at 640.7, long for soybeans at 1250.3 and short for wheat at 621.7

I took five short contracts for corn just because I wanted to offset my contracts and be ready to go short. The reason was that the U.S. government boosted its estimates for global stockpiles, signaling increased supplies for makers of food, animal feed and ethanol which will drive the corn price down in the following few days. Because of this, I also took two short contracts for wheat.

Furthermore, I went long for soybeans because the report from the National Oilseed Processors Association showed soybean oil stocks of 1.950 billion pounds down from 2.313 billion which indicated an increase in soybean oil demand; therefore the soybeans price would go up.

In sum, I am quite satisfied that the big loss on Monday has been offset by two bids mentioned above. Hopefully, next week it will be going better…

Last week, I offset all of my contracts with 26,080 of net balance. I am happy for even getting the result because in the previous weeks I was still confused a little bit about the trading game.

This week, however, after taking the lecture of commodity fufures Professor Jim Vercammen demonstrated, I almost understand how futures market functions such as  what the relationship between spot price and future price is, how to use an arbitrage, and how convenience yield works, which are really helpful for my understanding of trading game.

Overall, the market would be still bearish this week. The main reason is that US dollar continues to appreciate, so the imports price from the United States would become more expensive and demand would derease which drive down the expected prices of commodities. However, the information that China would increase the demand from the United State could rise the corn price.

This week I took two bids on Tuesday and Friday respectively…

On 4th Oct., I went short for 3 units soybeans at 1161 and 2 units wheat at 601 respectively.

profits1 =3*50*(1161-1158.2)+2*50*(601-607.4)=-220

For soybeans, besides the appreciation of US dollar, based on technical analysis, the fast moving average is still below the slow moving average, so the soybeans price is still a downward trend. In addition, even though RSI is 17.44 which is obviously oversold, actually, fears dominated the market so that people tend to be irrational at present. Therefore, I keep going short for soybeans.

For wheat, there were two reasons why I went short for wheat. First, a government report showed U.S. supplies of wheat were larger than anticipated, so excess supply would decrease the wheat price. Second, according to the indication of MACD, the fast moving average still crosses below the slow moving average never above the slow one from the very beginning of September, so the wheat market is still bearish.

On 7th Oct., go long for 3 units corn and go short for 2 units soybeans(but not enter to the market)

profits2 =(-3)*50*(603.9-600.0)=-585

Obviously, for corn, the reason why I would remain very bullish on corn is just the large corn demand of China importing from the U.S..

For soybeans, the reason why I went short is the weather conditions. Dry and warm weather was forecast across the Midwest and the Delta regions for several days, which would be likely to help crop development and advance the harvest. Therefore, the expected soybeans price would become lower.

Net balance= previous week net balance + this week profits=26,080+(-220-585)=25,275

Lastly, I will keep bullish on corn in the next week, because the market expects China to buy corn after returning from its annual week-long national holiday on 9th October to take advantage of a steep decline in global corn prices, even though there was a small decrease on corn price.