Month: October 2013

It’s week 6! Just when I felt happy because my misery in trading is coming to an end, I got a very pleasant surprise. Yep, what else is better than seeing my portfolio gaining a 14.96% return! Highest return I’ve ever got so far! Figure 1 shows my current portfolio as of Oct 25th and figure 2 shows my final portfolio over the course of 6 weeks trading.

Figure 1. Potfolio Summary

Figure 2. Final Portfolio

So, what exactly happened?

As all you know (if you follow my weekly blog posts), I’ve been holding living cattle contracts for a good 5-6 weeks now. The price of living cattle went high the first week after I bought the contract but remained constant after. However, yesterday the price of living cattle suddenly reach 5.9%, highest in 5-6 week period. Looking back at its price history, I’m pretty sure it will go down again back to the constant price I’ve been seeing for the last 5 weeks. So, I decided to go short on further month (Feb’ 14) contract, expecting the price will go down and it does, eventhough it’s not as much as I expected. However, I still gained a bit from that as you can see in Figure 1.

The wall street journal reported that US Live cattle futures went high hitting record price due to tight supplies due to prolonged drought in US Great Plains. My speculation that the price of live cattle won’t go any higher is also supported by the article. It said that higher beef prices will eventually face resistance from consumer. Since beef and pork or chicken is substitute, consumers have started to switch to pork and chicken which are currently cheaper.

As I stated before since beef price soars high (giving me lots of profit), consumers start to switch to its substitute, which is pork and chicken driving hog price high too due to the high demand. In addition to that, there has been a reduction in pork slaughter due to Porcine Epidemic Diarrhea (PED) virus found in US lean hogs. It is a virus that causes acute and severe diarrhea in all ages of pigs (Ken Scwhartz and Roger Main, 2013). This series of events have helped to drive up the futures price of hog. Fortunately, it also happens that I’ve been holding lean hog futures contract. Both livestock contracts have gave me quite a high return in only a day period! A  good day indeed, worthy of celebration (*cheers*).

Nothing quite exciting happens in grain market. Corn price trends downward as there is an expectation of high harvest in US. It is said to be the largest on record. Wheat price is still strong due to crop losses in Argentina driving the demand from US, third largest wheat producer and exporter (Investing.com)

What’s up in the next few weeks?

USDA Crop report on Nov 8! This might be a game changer as USDA decided not to release October report after the 16-day government shutdown. Be on the look out people! =)

Enjoy the weekends fellas! =)

Cheers

Finally, after 5 weeks long my portfolio shows an all green from all my open positions *cheers*!

Doesn’t it look nice?? 🙂

Here’s what happened this week:

1. 7-month high living cattle

Speculators went long on living cattle futures expecting that there will be a tighter supply of cattle in the upcoming months. Seems like I share similar thoughts with them. Based on the lesson that we got, should we start to consider going short on living cattle? It is said that as more speculators go long on future contracts, it will bid the price down (Econ 101). But wait, hold that thought! Reuters reported that thousands of cattle were lost to the freak blizzard in South Dakota a week ago. This further squeezes the supply for living cattle. Short supply means price will stay high for the time being (another econ 101). So, should we go long or go short on living cattle contracts? I’ll leave that part to you to decide 😉

2. Lean hog price settlement

My Oct’13 Lean hog contract expired on 15 Oct and I gained a bit from that and decided to buy the March ’14 contracts as I believe that the livestock market still shows a promising return (December is coming remember?). There is one thing that’s interesting on this Oct’13 contract expiry though. As we all know, US government has just ended its shutdown yesterday (Oct 17). So, with no cash market data supplied by USDA when the contract expired, how was the final price settled?

When contract expired, the futures price should be the same with the current cash price. However, with no data supplied by USDA due to the government shut down on the contract maturity date, this goes under the category of “force of nature”. The rule book of trading decided that if there is a force of major (like this), the price settlement will be based on the weighted average of the previous trading price, which in this case is Oct 11 and Oct 14. This opens up a lot of chances of price manipulation. However, CME group said that they will step up to do a surveillance of the pricing formula in order to prevent price manipulation from happening.

3. Soybean is bullish

As corn and wheat prices fell, soybean rose high as speculators expected a lower supply due to slow harvest in the central area of the US, the biggest producer of soybean. Jeff Wilson from Bloomberg reported that Southern Nebraska and central Alaska were at risk of frost or freezing weather. Rains also delay the harvest as it prevents farmers from going to the field, but, Tim Emslie, a research manager in Minnesota, promised that farmers will get back to the field later this week so that the rally may be limited. Since traders don’t know what is actually happening to the crop as USDA hasn’t released any crop condition report due to the partial government shut down, they can only predict that there will be limited supply. For those trading soybean, you better watch out when USDA releases the crop condition report. It may go with your prediction but it may also go the other way.

After US government ended its partial shutdown and USDA gets back to work on Thursday, these last couple of weeks of October will be a dreadful one for speculators. Earlier this month when the government decided to shutdown causing a limited data supplied by USDA, one of the biggest producers of grains, traders were afraid of the day they start to operate again. Lack of data might have given them a hard time for the last couple of weeks, but the questions are, when the data is available again, will it support the speculations or not? If it shows different numbers, how big is the difference between the actual data and the speculation?

Before I wrap up my weekly post, here is a good “food for thought” to think about

“Why is the man/woman who invests all your money is called a broker?”

Leave me a comment if you know why since I’m pretty curious on the answer as well =)

Have a great sunny weekend peeps!

Cheers

Happy thanksgiving!

First of all, enjoy the long weekend everyone, even though it’s not a happily spent long holiday for everyone (students, for example, we got midterms coming!) but hey enjoy the turkey! It only happens once a year ;p

Okay, now back to business,

Market this week is pretty calm, no drastic changes whatsoever until today! Corn price went down, BIG TIME! (good for me because it brings me back to the green 🙂 ) Figure 1 shows my current position to date and figure 2 shows my portfolio summary.

Figure 1. Open position

Figure 2. Portfolio summary

The Weekly Recap!

1. Trading in the Dark

As I said last week in my previous post, Oct 11th, which is today, is supposedly the time for USDA to release the important monthly crop, but as you all know, the government is still firm on continuing the shutdown. This is the first in 40 years that traders have to trade grains in the dark with no USDA report. Dennis Collins, a director in Trilateral Inc in Chicago, pictures this as a pilot flying a plane then suddenly the flight controls goes down.

Traders are trading with a blindfold

There is one advantage of this issue, which is low price volatility as traders chose to stand on the sideline and not speculating much. On previous post, I expected that price will go down, however, Kim Anderson in South West Farm Press stated that the absence of USDA report will have little effect in price. She said USDA report is generally the one that’s considered unbiased, accurate and consistent compared to commercial report, but in the absence of it, the market will not stop. It will continue to look for data, even though they have to use the commercial one. She also predicts that price volatility will peak after the shutdown is over if the data speculated is completely different with USDA report. So, we better watch out!

2. Bullish Wheat, Bearish Corn

Wheat price is staying strong causing me to lose money all week long as the demand of wheat from China is still high ( ;( ), however, corn price went down today. This is said to be the lowest in three-year for corn as the dry weather is speculated to help a record harvest in US, a major producer of corn. Moreover, biofuel mandate that has been one of the reasons of high price in corn, as government is trying to scale back its mandate. EU, for example, is going to cap their biofuel originated from food source to 5% by 2020.

This week market is even boring than last week,

Feeling meh?

but, looking at the bright side, no stressful day caused by the price spikes ;p

Anyhow, I’m planning to try a new trick next week, hope it works!

Have a happy thanksgiving once again fellas! I’m gonna go get my turkey!

Cheers 🙂

Week 3!

Half way to go! and yet not making any money 🙁

Things are looking better for me this week, even though I still lose my profit on wheat. Figure 1 shows my position as of today.

Figure 1. Open Position Status

And this is my portfolio overview (figure 2) so far also my portfolio summary (figure 3)

Figure 2. Portfolio Overview

Figure 3. Portfolio Summary

Here goes my weekly recap!

The market has been pretty quiet this week with no sudden spike of prices (*phew!*). It was good decision to stay on my ground for this week, as corn price is going down again, while the live cattle and lean hog prices go up again regardless of the US shutdown. However, I really need to stop losing on wheat as its price stays high. So, these are the updates:

1. US government shutdown

As of Oct 1st, US government has shutdown because they can’t reach mutual agreement on US budgeting plan. A first after 17 years! Even though USD fell after the shut down, it doesn’t show any significant impact on futures contract prices. According to CBC news, there are only a few signs that it will end soon and it’s been the fourth day! As stupid as this may be, if this goes on it will affect not only the 700,000 unpaid government employee, but also world economic as USA is one of the main players in it.

2. USDA report

The release of USDA report on monday, Sept 30th, didn’t really affect the prices of the commodities much. However, due to the US government shut down, access to USDA statistics is blocked leaving the food producers and traders in the dark, not knowing what world’s largest farm exporter activities are.

Yep, that’s what I thought too!

The next anticipated report is the monthly crop estimates that should be released on Oct 11th, however, if the shutdown keeps showing no sign of ending, the release of the report will be delayed and that for sure will cause troubles for producers and traders since the report will cause price spikes of the future contract. The only positive thing that comes from this “lack of transparency due to government shutdown” is the fall of USD currency that promotes buying activity. Nonetheless, according to agrimoney, there are serious concerns of “walking in the dark and falling to an abyss” from the commodities player due to the lack of transparency. That’s why people are starting to stay on the sideline and worst, leaving the market. This will probably drive the price down as people are selling their contracts.

You don’t want to “misheard”

Question then arouse, if USDA is shut down, then why does the price of live cattle and hogs are still bearish? They did fall quite a bit in the middle of the week, but they went up strong again today. This is because even though they USDA is shut down, there are laws regarding meat that basically saying that they need to be certified before entering the market. Thus, if there is no certification due to USDA shut down, the market will go default, which is unwanted. So, they still assign people to work on it regardless of the government shut down.

What’s next?

As I said earlier, this week has been pretty quiet mainly because of the US government shut down, causing people to sit on the sidelines.

Looking at this condition, I’ll keep my position while looking for chances to cover my wheat contracts to stop my lost since there’s still strong international demand due to the bad condition in Argentina, China and Brazil. The next big thing that we will have to keep an eye of is the monthly crop report on Oct 11th. That is if the government can come to a mutual agreement before that. If not, I expect a fall in price as people won’t like to “bet” on uncertainty.

End of week 3, still scratching my head learning the market, but it’s a working progress. A quote from a friend of mine working as a palm oil trader:

“I remembered those days vividly“- Ricko Gosiga and Andreas Tjoa

This makes me at ease because I know that everyone has a rough beginning in this market! =)

Cheers!