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