The Road Ahead

I expect that world productions of wheat are expected to decrease due to shift in supply curve. Russia and U.S.A, main producer of wheat, suffered from severe drought condition, leading to higher price. Also, again Russia’s restriction on exportable wheat will affect the price. In addition to Russia and U.S.A, UK wheat farmers are worried about this winter harvest due to bad weather. In time of harvest, it rained over the weekends and is expected to rain following week. All affects to shrink supply curve in wheat.

As well, when we look at stock, the current wheat stock reduces by 2% from USDA report. It causes price increasing. It is enough alarm to get traders’ attention and to increase demand of wheat. Traders will store more today for future. It means that less available now, so price is expected to increase.

Also from 2^nd assignment of FRE 501, we found that corn and wheat have high correlation because they are substitutes. Regarding Corn market, U.S corn prices is increasing by 50% compared to the price before severe drought came along.  China, largest corn consumer, reduced its import form U.S due to high costs. And China’s domestic output growth is not efficient due to bad weather. USDA expects that consumption in wheat reduces by 9% this year.  The article says that livestock farmers have been substituting expensive corn with wheat. So I anticipate wheat demand will increase. It is caused by more consumers choosing wheat instead of corn.

In the end, I expect the wheat price is going up due to increasing demand and decreasing supply.

http://www.agrimoney.com/news/rains-return-forces-growers-to-mull-ditching-crop–5038.html

http://usda01.library.cornell.edu/usda/current/GraiStoc/GraiStoc-09-28-2012.txt

http://www.brecorder.com/agriculture-a-allied/183/1242536/

The balance of  margin accounts

What I went wrong

Last week I went Long on wheat. I expected that wheat price was going to increase. It was because of decreasing in exportable wheat from Russia. However, the price kept on decreasing by $855.5 on Sep 26^th from $890.75 on Sep 24^th.

I assume that the news that Russia is going to export less amount of wheat has not impacted on CBT. I read an article. It says that Egypt, the world’s largest importer, has been the main customer of Russia; however, Egypt makes a contract with France instead of Russia.  It seems that the biggest importer finds another supplier in Europe which sells wheat at cheaper price.

However, on Sep. 27^th wheat price increased by $902.5. It was expected to increase by +44.4 from CME group. One of reasons is report released by NASS and USDA on September 28, 2012. It says that Corn stocks decrease 12 % and wheat stocks by 2% (provided by Roson’s blog). This means there are less stocks of grain available due to bad harvest. It refers that future price of grain is higher. This calls higher demand of grain. This increasing demand leads to higher price of wheat.

Even though my prediction was right, I did not offset because I misunderstood the closing market time.

http://www.fao.org/giews/countrybrief/country.jsp?code=EGY

http://www.agrimoney.com/news/paris-wheat-prices-hold-firm-after-egyptian-order—5034.html