Surprise in corn + MarketWatch easy-to-read charts
Last week’s expected corn pattern didn’t go so well, but it did end the week on an unusual high, judging from the week’s prices.
Source: http://www.marketwatch.com/investing/future/corn
So, even with all the news about corn shortages, I will try to capture some profits in the first couple of days this week.
However, looking at my semester’s trends, it does seem like my short wheat position is still a much better long-term option than the choppy history I’ve had in the corn markets.
Therefore, I’m going to stick with learning some more corn lessons in the last couple of weeks, and hopefully take home some profits from getting out of two of my wheat contracts before the week begins.
Week in Review
This week I was reminded again why I didn’t like the unpredictability of the corn markets. After trying to capitalize last week on what I thought was a weekly trend with an early week fall in corn prices, the Tradesim delays struck me, and I ended up instead observing different sorts of weekly trends.
Instead of falling at the beginning of the week, corn rose as the week went on.
Wheat, on the other hand, refreshingly followed it’s slight downward trend, which was again reassuring after some recent choppiness.
Since we learned last week about moving averages, I thought I’d take a look at the moving average of my longest-held contract, which makes me worry a bit about how that recent massive fall in prices will be responded to, if at all.
Cool information: for visual learners
That title may have been a tease, but I can get lost in maps for hours, so for any like-minded map lovers out there, the National Corn Growers Association is a surprisingly active website with news, information, and analysis of all sorts:
Interestingly, their response to the USDA report’s corn harvest forecasts don’t mention the counteraction from Obama’s re-election and its results on ethanol production.
Week in Review: Go Obama!
Politics made things very confusing this week. After Obama’s election Tuesday, and the promise of continued “status quo,” markets fell across the board. However, fears of what Reuters calls an impending “fiscal cliff” also injected fear into the markets [1]. This confusion was felt in the corn market, where prices shot in many direction. I looked to forecasts for ethanol production, which Obama is expected to cut [2], meaning demand will decrease. Unfortunately, that explanation ran counter to the skyrocketing prices in both corn and wheat, so we must look instead to bad weather in the US, Canada, and other major producing markets for a possible explanation.
I remained unsatisfied. Therefore, I kept my position in wheat and instead tried to capitalize on the large jump by re-entering the corn market at what I hope is its peak. “Expectations for a boost to official estimates of the US harvest when the US Agriculture Department releases its monthly supply and demand forecast on Friday added to the bearish tone…” [3] This “bearish tone” was reflected in the USDA report and I see no reason to expect it will change much in the near future.
[1] http://www.reuters.com/article/2012/11/07/markets-global-idAFL5E8M73RX20121107
The week ahead: Week 9
I’ve been watching a consistent holding of wheat futures for the past few weeks, and very nearly freaked out when the prices skyrocketed after the US election this past week. This made me question my usual Wednesday/Thursday routine, so I looked for weekly trends in my corn and wheat holdings. Observing the trends in my own holdings (in true business school market research style), it appears my intuition was true.
The Thursday peak is surprisingly consistent. But what is most alarming is the dramatic fall at the beginning of the week in corn prices, a trend that begs to be tested.
Great weekly summaries, plus more candy corn
This week I stumbled quickly on a great recap of the week’s markets, at ForexPros; an excellent, concise weekly outlook informed by summaries of last week’s activities:
http://www.forexpros.com/news/commodities-news
On a more newsworthy note, for those of you trading corn, Stephen Colbert has reported on a brilliant continuation of last week’s news that cattle farmers are turning to (HFCS-filled) candy as a more affordable feed for their cows than (HFCS primary ingredient) corn itself.
http://www.colbertnation.com/full-episodes/thu-october-18-2012-the-killers
Plus, for anyone unfamiliar with Americana, Colbert’s story about the Corn Palace is also definitely worth watching. (It follows his story on “candy corn.”)
A Macro View
I have spent the last few days in Baltimore, Maryland, and as such have been re-immersed in US politics, less than two weeks before the presidential elections. And while the USDA Crop Progress Report comes out on Monday, none of the shocks in the markets have lasted for longer than a couple of days. Since I am trading with a longer-than-day-trader strategy, this means my “weekly” (or so) outlook should consider the election more seriously.
Unfortunately, I take a rather cynical view of politics, and don’t anticipate any major changes in governmental policy with any new administration, or any new combination of staff or Congress under a continued Obama administration. I do, however, think policy regarding agricultural subsidies and requirements governing products like biofuel has a major influence on national supply and demand (recognizing in this observation that biofuel and wheat are not close substitutes). Because I anticipate little policy change, I find myself returning to other drivers of price fluctuations, like weather. However, judging from this week’s quick reaction and re-balance from the Ukraine’s trade announcement, even international trade decisions from enormous global producers may not have much effect on Chicago prices.
Taking this macro view may be more in line with my trading style. Therefore, I will hold my general short position in wheat, but I am interested to see what will happen with my spread position, so I will remain patient with that for the rest of this week.
A jump in wheat
My spread position this week didn’t see much action, since any difference between contracts was hugely overshadowed by Wednesday’s surge in prices due to Ukraine’s announcement they would stop exports in November. [1] In keeping with longer-term trends, wheat prices ended slightly lower than at the beginning of the week, meaning my combination of long and short positions ended without seeing any major shocks. (Hooray!) While this means I didn’t have any great revelations about my short position, it does mean my last couple of weeks of losing money fast slowed down.
Below is the graph of my contracts from the beginning of term, showing my slowly growing confidence in a long term short wheat contract.
[1] http://www.forexpros.com/news/commodities-news/grain-futures—weekly-outlook:-october-29—november-2-239990
Seasonal trends
I’m trying to figure out how to enter a spread this week, which means I’ve found seasonal trend charts useful from Futures Buzz: http://www.futuresbuzz.com/seasonal_charts.html
Week 5: Surprise!
Right when I thought I had these general trends under control – Surprise! All of our trading commodities suddenly hit bottom and rose last week, catching me completely unawares. I shouldn’t have been surprised, frankly, but it did cause me to panic a bit and get out of my short contracts quickly. This means I’m now only trading in wheat, which is less interesting but, since I’ve discovered I’m not a good day trader, is probably a better idea. I ended the week down $4,328.33 from the end of last week ($39,50,29 to $35,178.96), but more importantly, down $7,865.87 from my Monday ending balance of $43,044.83.
I am uncertain whether I should have kept my medium to long-term strategy that led me to enter those short corn contracts in the first place. Looking at longer term trends in the corn markets means I am looking at entering a spread this week, but that’s a subject for the next post.
Why did the prices rise, and why should I not have been surprised? As I said last week, I was looking at the Australian wheat harvest this week, and I anticipated a drop in prices because of an increase in supply. However, I failed to remember that it is the size of the harvest relative to expectations that is key, not today’s greater supply of wheat as compared with “yesterday’s.” So I went short on Tuesday when I should have gone long, and got out of it on Friday.
By early last week, predictions had come true, and prices had gone up. In a hasty move, because I didn’t have time to read up on the news, I noticed gathering disaster forming, and I got out of almost all of my contracts without entering the market any other ways. I think I cut my losses, but it does mean I lost consistency with my longer-term strategy.
According to Bloomberg, “Wheat climbed 35 percent this year as dry weather in parts of the European Union and Russiacut global stockpiles to the lowest in four years, helping boost food costs 7.7 percent the past three months. The U.S. Department of Agriculture cut its estimate for Australian output 12 percent to 23 million tons on Oct. 11. That may be lowered a further 2 million tons in coming reports because of dry conditions, said Rabobank International.” [1]
[1] http://www.bloomberg.com/news/2012-10-22/wheat-harvest-in-australia-seen-slumping-to-lowest-in-five-years.html