Recap of last week’s holdings
I was holding short contracts for all 3 commodities last week because prices fell quite dramatically. (Ex. I was holding 9 short contracts for wheat and 11 short contracts for soybeans!) A few of my colleagues have cautioned me against this as it is challenging to accurately predict the market’s movement, thus probably impractical to hold too many short contracts in the long run–> subjecting myself to too many risks should the market turn around.
—————————————————————————————————————–
As Bernanke announced that no additional dollar printing will occur now in the US, there will then be a limited supply leading to appreciation and lowering prices of commodities. The US dollar has strengthened to its highest value in 11 months. However, this could possilby create psychological barriers amongst traders in US dollar investments as it has been depreciating steadily this year. I predicted that the prices of commodities would rebound a bit since they have fallen in prices over the last week, and traders are taking more caution towards the US dollar appreciating.
Although corn production has increased to 16 tonnes in Ukraine, it was originally estimated to be over 18 tonnes this harvest. News also reported that traders are believeing that the corn market is oversold. From the technical analysis p.o.v, the corn market looks bearish in the short-term, but with news that global demand for corn is expected to be increasing, I predicted that it would lean towards the bullish side on the long-run. All these factors, on top of my intention to offset some of my short contracts, I decided to take a long position on 5 contracts for corn.
Corn -> 5 long contracts @ 645cents (592.4-645)*5*50 = -13150
It is believed that soybeans have been oversold last week due to their rapid fallen prices. Reports state that the production of soybeans in this harvest period has been lower than what they had expected. From the technical analysis view, prices are fluctuating quite a bit with soybeans prices and since I am holding 11 short contracts, I have decided to attempt in offsetting some of my contracts to reduce my risks.Soybeans 5 long contracts @ 1252 (1179-1252) *5*50 = -18250.
Dry weather has been a setback for wheat crops, affecting 80% of winter grain production. Moreover, the lack of humidity on the soil’s surface is increasing the concerns of sowing for farmers. With predictions on our WIKI blog that wheat prices may go up, and with my holdings of 9 short contracts, I decided to try offsetting some by taking a long position with 5 contracts.Wheat 5 long contracts @ 650 (609.2-650)*5*50 = -10200;
__________________________________________________________________
My margin balance is currently 79650. I am holding 2 long contracts for corn, 6 short contracts and 4 short contracts for soybeans and wheat, respectively. As news today reported that the corn prices have fallen again, and the outlook is extremely bearish according to technical analysis, I am planning on offsetting my long contracts for corn next week.
REFERENCES
FRE 501 Twitter
FRE 501 WIKI http://wiki.ubc.ca/Course_talk:FRE501
News Articles:
Effects of Weather on Corn/Wheat http://www.agrimoney.com/news/ukraine-weather-weighs-in-on-side-of-corn-vs-wheat–3638.html
PS. I have also learned that I should not freak out over the number of short contracts that I was holding. I should trust my research and decide on which factors would affect the price movement the most significantly, and then place my bid accordingly. If the price is, say going to decrease, then the more short contracts under my belt, the more profitable I will be. Afterall, taking sensible risks is what bidding is about!