For Sept. 20th Tuesday
Investors are favouring the US dollar over fears of the Euro Debt. Thus, US dollar is strengthening and I predict that the prices of commodities are going to lower. However, rumours have that China is going to demand a significant amount of corn from the US. This would decrease the supply of corn, and I predict that the price would then be forcasted to increase.
Since corn is going to increase in price, I will bid for a long position on 5 contracts at 690 cents. So if price does go up in the future, I would be able to profit from selling it at a higher price than now. However, for the remaining 2 crops, I am going to hold 5 short contracts each because I predict that the prices would continue to decrease. If it does indeed decrease in the future, then I would still be able to sell it at the higher price that I am bidding at right now.
Profit: Corn -> 5 long contracts @ 690cents (690.2-690)*5*50 = 50; Wheat 5 short contracts @ 671 (671-674.6)*5*50 = -900; Soybeans 5 short contracts @ 1335 (1335-1338) *5*50 = -750.
For Sept 21 Wednesday
Between these couple days, the US dollar has been experiencing slight fluctuations (although it is increasing in value overall) as some claim it to be a safe haven and others don’t. Thus, I decided to observe the different factors for a little longer before jumping into the bids again. However, a news article reported that soybean production is up 16% from 2010, as well as technical analysis also shows the trend to be extremely bearish, so I decided to bid 3 short contracts. Profit: soybeans 3 short contracts @ 1340, (1340-1345.2)*3*50 = -780.
For Sept. 23 Friday
The US dollar continues to strengthen, driving commodity prices even lower. In fact, soybeans in particular is reported in the news to reach the lowest drop in 2 years because of recession fears building up. However, wheat prices are seen to be fluctuating quite a bit and not decreasing as much on the technical analysis side. However, it is still forcasted to be decreasing, but just may not be as rapid as the other 2 commodities. So, I decided to take 5 short positions each for corn and soybeans, and 2 for wheat.
Profit: Corn 5 short contracts @ 653, (653-638.4)*5*50=3650; Soybeans 5 short contracts @ 1267, (1267-1258)*5)50= 2250; Wheat 2 short contracts @ 640, (640-640.6)*2*50= -60
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Currently, I am holding 3, 11, and 9 short contracts for corn, soybeans and wheat, respectively. I am earning money in the game as my margin balance is now 1132700. So far, I have made 1107700. I am going to hold my positions and observe the market movement, and then take action as to what I will do next.
References
FRE 501 Twitter
FRE 501 WIKI http://wiki.ubc.ca/Course_talk:FRE501
News articles :
Corn/Soybeans Futures fall, Wheat rises http://www.washingtonpost.com/business/markets/corn-oat-and-soybean-futures-fall-but-wheat-futures-rise-on-the-cbot-livestock-prices-rise/2011/09/23/gIQAH1r9qK_story.html
OH MY GOD!!!Lisa you really earned large amount of profits!!!Congratulations!!!^^
I think you really know how to figure out which one is the most important factor to determine the price, and I think I learned a lot from your blog since it is professional and clear about the points~~~
I only have one question about your blog: on the first paragraph, when the demand of corn from China increases, I think only the demand on the import side will increase which causes the price to increase and there is no change on the supply of corn. This is just my comment, maybe we could have a small discussion about it since I am still a little bit confused about the trading diagrams:)
Hi Yan,
When I predicted that the price would increase because of the significant demand from China, I meant the global supply of corn would decrease. I took it as there would be a forecasted supply of corn on the global market, then with China’s demand, now this forecasted supply would be lower than expected. Was this what you were thinking?
I still confuse about how corn price affect the wheat price, although I know they are substitution. These news confuse me.
Hi Eva,
I’m not sure which part in particular confused you. I didn’t imply that the corn price affects the wheat price – please let me know which part you deduced that from. Thanks.
Hey Lisa,
In my idea, The US exchange rate has slight effect on future prices, while you’ve considered this factor for everyday strategy. I think all other factors are more important than US dollar rate.
Also, I have a question. Why would demand corn by China decrease its supply in US?
Thanks
Hi Hossein,
US exchange rate is a factor that I look at before I bid everytime, but by no means I put my total judgement on this factor. I also try to take into account the other factors as much as possible from twitter, WIKI, and news articles whenever available. Then I decide which factor would have the most significant toll on the prices – or which mixture of factors if that was the case.
I did not mean that China’s demand would decrease US supply. I wanted to say China’s demand would then decrease the global availability of corn to other countries because a majority of them are demanded by China.
Wow!U made a loooooooooooot of fortune!!!!
from what i read this week, us dollar is deapreciated which means its relavant cheaper to importers,so they will buy more from us which increase the price of CBOT,is it right?
Also ,could you explain me Euro debts?(I just know euro is super cheap now so i change some euro now planing vacation for xmas hahahha)Since i just focus on supply and demand,or lil bit of US exchange rate, so ur euro debt is reallly surprising to see for me:)and im quite unfamiliar about this,maybe u need to give me more genaral and detailed information.Thank you soooo much:)
Lets make money together haha!
Fancy
Hi Fancy,
Thanks for your comment. The Euro debt was a factor that we discussed in my expert group meeting that played a role in why the US dollar was appreciating last week. It was because of the Euro debt that a lot of investors turned to US dollar, thus decreasing the supply of US dollars and in turn, causing it to appreciate.
I keep several short position of soybean…….I just wonder what should I do of them…I think after reading your blog….I have a better understanding of the situation, nice blog… brief description and clear calculation~
So if price does go up in the future, I would be able to profit from selling it at a higher price than now. However, for the remaining 2 crops, I am going to hold 5 short contracts each because I predict that the prices would continue to decrease. If it does indeed decrease in the future, then I would still be able to sell it at the higher price that I am bidding at right now.
Also I still have a bit confused about this…would you mind to tell me detailed tmr?
U make profit in the last week and good luck for the coming week~
Hi Lulu,
Thanks for the catch. I meant to say that by holding long contract, I would be able to profit from buying it at the lower price now should the price increase in the future. I have corrected it now 🙂
Seems you got a big win this week!
Do you believe that all these three price will keep decrease in the following week? Just be caution on your average biding price, because you did bid short in a very low price, some may just around the so-called “resistance”. It may causing a lost with careless.
Good luck for next week!!
Hi Lixi,
Because the commodities have been decreasing at quite a rapid pace this past week (especially soybeans I believe), I predict that they would rebound at some point (more or less). I am holding a lot of short contracts right now, so thanks for reminding me to be more cautious about that!
Lisa, looks like you are wining lots of money this week. Most of us in our class lost big amount of money. Maybe I should ask for your advise on next week’s bidding game. Well I also believe that you are no holding to many contracts. Maybe you should get rid of some in order to reduce risks.
Good luck next week!
Hi Yiyi,
Thanks for your reminder. Indeed, I am holding a lot of short contracts right now. I would plan to offset some in order to reduce risks!
wow u are rich lisa! i’ve only made approximately 2000 each these 2 weeks..so sad hahah…i guess i should be more brave like u, ive been quite risk averse and so far i only have 3 contracts.
Soybean was weird for me because most of the expert blogs reported a bearish market for soybean, but like u said, u read an article saying soybean production is increased by 16%, but also another article saying production is at its low..so i had a hard time deciding what to do.
I guess i am still quite confused about how US currency will affect commodity. prices, but i’m thinking is US dollar appreciates (goes up in value) relative to other countries, then it takes more for other countries to buy US commodities? is that right? On the other hand, if US were to import, then it would cost them less to buy from other countries right?
So in terms of trading, is US dollar appreciates, and say China regularly imports corn from US, then it will cost China more to import. Due to higher price, China will import less, so supply stays high in US so US corn price decreases?
is this the logic?
Thanks for sharing!