According to the findings posted on WIKI-blog, I have deduced the expectations that prices of commodities would rise. Dry weather in the US that has severely damaged crops in the past month, depreciating US dollar over the past while, decreased yield in crop production are all factors that may most likely contribute to the increase in commodity prices.
However, from Twitter announcements as well as agriculture articles, prices cannot increase in just overnight’s time – there would be a period where they adjust into the upward trend. So, I have decided to take advantage of this incubation period in taking long positions on my bids before prices start to rise.
Sept. 14th
Corn: took a long position for 2 contracts, bidding 710. Unsuccessful as the lowest price reached that day was 716.4
Wheat: long position for 2 contracts, bidding 688. Again, too low of an estimate as the market dipped till only 698.
Soybean – decided to observe a bit more as I read updates on a sudden increase in supply due to the occurance of a heavy rainfall in the US.
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Unfortunately, I estimated the prices to be lower than it really became, so I was unsuccessful in taking a long position to enter the market. I studied up on the trends of the pricing from the past few months, with aid from the findings of our technical analysis group. I decided to bid again on Wednesday.
Sept 15
Corn: took a long position with 2 contracts at a bid of 715. Loss of profit that day as I bought it at a more expensive price – it reached a low of 700.2.
Soybean: I concluded from all my readings and research that soybean production is going to increase because of an unexpected heavy rainfall in the US, and thus the price of soybeans would decrease. I bid for 2 long contracts at 1375, and had a loss of profit that day as it dipped even lower to 1356.4.
Wheat: From diagrams and data that illustrated the trend of wheat prices, I expected that the price would rise. I then took a short position for 2 contracts at 702. However, the highest price that it reached that day was 705.6, so I underestimated the peak to be a little lower that day.
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As of this moment, I am holding long positions with 2 contracts each on corn and soybean at bids of 715 and 1375, respectively. I am also holding a short position on wheat with 2 contracts at 702. Currently, I am losing money in the game as my margin balance is now 22120. I have lost so far, 2880. So before I make any more decisions, I am going to hold my positions and observe the market movement, and then take action as to what I will do next.
References
http://www.publicopiniononline.com/ci_18849145?source=most_viewed
UBC Wikiblog FRE 501 Course
http://wiki.ubc.ca/Course_talk:FRE501
Twitter FRE 501 Postings
Do you still think the trends of all this three will back to Upward? Cuz I think, from the Technical Analysis’s angle, both corn and soybean are in a downward trend in long run.
I have to say that I am not experienced enough yet to predict the trend in how the commodities would run in the future. The trend would have to depend on a lot of different factors, and I would have to observe the exchange rate, production/demand etc to determine which factor would affect the price most significantly.
“Soybean: I concluded from all my readings and research that soybean production is going to increase because of an unexpected heavy rainfall in the US, and thus the price of soybeans would decrease. I bid for 2 long contracts at 1375, and had a loss of profit that day as it dipped even lower to 1356.4”
Hi Lisa,
If you expected price is going to decrease why did you go long? I think going long on a contract means you agree to ACCEPT delivery of that commodity at the set price at a future date. So let’s say if you go long at 1375 you make profit if the price goes UP. E.g. if price rises to 1380 in the future, then the market price is 1380 but you only have to pay 1375 thanks to your futures contract, which means you get it at 5 less than market. It’s like geting soybeans on sale =)
I agree with your analysis that the price of soybeans, based on the data, should decrease. So I took a short position. If enter a contract to go short at 1375 it means that you agree to DELIVER soybeans at a 1375 at a future date. Then if market prices fall in the future to 1350 that means the person you deliver the beans to has to pay you 1375 and you make 25.
The numbers I used above are completely fabricated, but I was super confused too about going long/short and did some research on it.
Hi Nick,
Thanks for your insight. I decided to go long because I assumed that the price would reflect the impact of the heavy rainfall immediately. Because of a long heavy drought over the summer which has damaged the crops, this sudden rainfall was uncalled for. So before the news broke out, it was unexpected that production would increase. And because of this update, I expected (maybe too naively thinking about it now) that the decrease in price would be reflected immediately on the market, so I went long.
Hey Lisa,
Thanks for sharing your strategy!
I have a couple of questions for you.
– what is the source of the heavy rainfall in the U.S?
– why heavy rainfall causes soybean supply to increase?
Your strategy seems well diversified. Hope you make profits on coming week.
Thanks.
Yijeong
Hi Yijeong,
Please fine the source of the heavy rainfall as referenced above. I got the information from our WIKI blog by the expert’s group on weather. It was also on news articles.
Heavy rainfall increases production because the crops have experienced a very dry summer, which has damaged some immature crops.