Recap of Last Week’s Open Contracts
I was holding 1 long contracts for corn, 2 short contracts and 1 short contracts for soybeans and wheat, respectively. I have been trying to offset my short positions since last week as prices of commodities have rebounded. However, I was able to only successfully offset corn.
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Tuesday Oct. 11th
Although it has not been confirmed as of yet, but China is expecting to increase their demand for corn. Thus, because of China’s expected huge corn demand, I predict that the prices of corn would continue to rally. However, I will do this cautiously to leave myself with some flexibility as I am already holding 2 long contracts for corn. Weather news have reported that harvest may be delayed for about a couple weeks, meaning corn supply would not increase yet. However, once harvest takes place, prices could possibly decrease so I decided to bid for 1 long contract in corn.

Soybeans and Wheat – Prices have rebounded since last week, so I wanted to offset my open contracts. News have reported that although there is a lower demand for soybeans than anticipated, the soybeans production was also lower than predicted. Thus, I decided to bid for 3 long contracts, because if I successfully offset my 2 short contracts, I would then hold 1 long contract. The demand for wheat has fallen, and Russia’s government said that fees for wheat (grain) exports would be imposed as an action to prevent grain exports. Thus, supply for wheat on the market would expect to decrease so prices should increase. I decided to bid for 2 long wheat contracts.   Profits = Corn:2250, Soybeans: -7720, Wheat: -2660. Margin balance at 74630 (decreased from 82,760 last week) by the end of the day.

Thursday Oct. 13th
China has confirmed on their huge purchase of corn, so I expect the price would continue to rally. I decided to bid for 2 long contracts because from news articles and reports, I predict that China’s demand for corn should have a significant impact on the corn price. Indeed, corn price has already been reported to increase since a couple days prior to the news release. This reflects the impact that China has on the corn market with its huge demand. Furthermore, USDA’s National Agricultural Statistics Service has reported that the crop’s forecasts of corn and soybean production both dropped from production estimates.

Soybean – USDA’s National Agricultural Statistics Service has reported that soybean production is lower than was predicted, I expect that prices would continue to rally. Furthermore, it is forecasted to be at 3.06 billion bushels, which is an 8% decrease from last year’s production. Statistics show that this forecast yield is the second-lowest yield since 2003. I predict the price would thus continue to rally. So, I decided to bid for 2 long contracts.

Wheat – From the research that I have gathered this week, it seems like it has been a roller-coaster week for the wheat market. From the technical analysis p.o.v., the wheat price has rebounded and recovered some ground from last week’s low. Also, the Russian goverment has announced an export tariff about to be introduced in Russia, as an attempt to prevent exports (so their wheat prices would decrease domestically). This would then lead to a decrease of supply on the global wheat market, so prices should be expected to increase. However, the US Department of Agriculture has reported that there is a much larger global wheat supplies than expected, which caused the wheat price to decrease on Wednesday. This is the largest stock for the last 10 years and 7 million more tonnes than traders had originally anticipated. Thus, due to contradictory factors, I decided to get out from the wheat market to observe what is going on and which factors are influencing the price most significantly first. I took 1 short position to offset my 1 open long contract. Profits-> Corn: 400, soybeans: 650, wheat: 230.  _______________________________________________________________________
My current margin balance is 77, 080. At this moment, I am holding 4 long contracts for corn, 1 long contract for soybeans and 1 long contract for wheat. I’m going to observe the market and am planning to reattempt in offsetting my open long contract for wheat to get out from the wheat market. I will research on the different factors that will have an effect on the wheat price and try to determine which factor(s) would be the most influential before I take any further action on wheat bids.

References:
FRE 501 Twitter
FRE 501 WIKI  http://wiki.ubc.ca/Course_talk:FRE501
News Articles: Corn and Soybean Production Both Drop on USDA Forecasts http://nationalhogfarmer.com/nutrition/corn-soybean-production-drop-1012/

Russia said it could introduce a new cap on grain exports http://www.ft.com/cms/s/0/b2ffc95a-f42f-11e0-bdea-00144feab49a.htmlhttp://www.washingtonpost.com/business/markets/corn-and-wheat-prices-fall-after-usda-predicts-bigger-surpluses/2011/10/12/gIQALMSgfL_story.html