I believe that my logic behind this week’s trade should lead to a discussion of stocks to use ratio as a determinant of price. How lower expected yields influence storage of old crops as opposed to their consumption at harvest time, and how early harvests may affect price in the short run are all questions that I was not able to address adequately. I believe that based on historical data, benchmark ratios for various commodities have been established. For instance, a stocks to use ratio for corn that is under 12% strongly indicates price rise (1). For my next transaction, I’d like to explore this further. The goal will be to become confident enough to go long on corn and stay in the contract for a few weeks to realize profits from the expected price rise.
Also, an assumption I made this week was that the price of corn is predominantly determined by the situation in the U.S. However, I realize that this is a myopic view of the market and therefore, in future transactions, I’d like to explore data on stocks and consumption in other corn-producing countries as well, in order to more accurately predict world supply and demand.
One reply on “Week 1: The Road Ahead”
Good going!