USDA trends and the resilience of corn influence a short position
I decided to start my trading with corn, since I am most familiar with the sight of expansive fields of it, as a former US Midwesterner. My few farmer friends are in the Midwest, and the drought this year has meant I am most comfortable with speculation in the media about its effect on corn and corn’s various food byproducts. A novice in the circles of options and futures trading, and the stock market, I let the experts at Bloomberg explain recent trends and expectations for me.
“Corn Bulls Retreat as Near-Record Costs Curb Demand” appeared to be a simple headline to guide my first trade [1]. It serves well to first understand that a bullish market is optimistic, and therefore invests more in the future at stake, and a bear market is pessimistic and therefore dominated by sales (short) of futures at hand. The 13 September Bloomberg article states that “the US government said the worst drought since 1956 will damage the crop less than analysts had expected and on speculation that near-record prices will curb demand.” This shrinking demand means prices will decrease, suggesting a short position is desirable. While Damien Courvalin, an analyst at Goldman Sachs, wrote that “Prices may have to rise further before consumption is constrained,” the argument that “The USDA lowered its estimate for U.S. exports by 3.8 percent from a month earlier to 31.75 million tons, down 19 percent from a year earlier” appeared on a more influential scale and with sufficient evidence to convince me to go short on my first corn future speculation.
I made the trade on Thursday, so one day of trading later, my decision looks good, as my marked to market balance has increased by approximately $37. I anticipate seeing what week opening patterns exist in this market before making my next trade.