This week, I decided to trade in the December 2012 contract for Corn. To my delight, my simple analysis was sufficient to earn me $287.
Due to the drought in the U.S., I expected that corn yields would be lower this year. And since the U.S. is the largest producer of corn in the world, the price was bound to rise. I then started to look for news articles that would confirm that such a rise in price is in fact taking place. However, something seemingly counter-intuitive emerged in the literature. The usual harvest period of corn in the U.S. is October to November (1). This year however, 9% of the acreage was harvested by the end of August as compared 2.5 % in previous years (2,3). I realized that since excessively hot summers speed up the growing season, an early harvest is only natural and is thus being observed.
Perhaps due to the expectation of a shortage of corn in the future, farmers decided to continue storing their old crops and as a result, the higher projected “carryin stocks” of corn more than offset the expected deficit in production (4). Add to this an early harvest, and at this point in time one finds that supplies of corn are higher. I therefore went short on corn this week and realized some gains as a result.
2 replies on “Week 1: What Went Right”
Great job putting together research and what we are currently learning in lecture. Your analysis was clear and easily understandable so it is no surprise you made a positive gain! Good work!
Please try to understand the equity balance on the daily report from TradeSim and include comments regarding it on your next posting. If you need a help to understand it, please let me know.