I intend to keep my spread position on corn for the week that follows. I also believe that while we are closing to the end of harvest period in US, the price for corn will increase.
Whereas the forecast corn production for 2012/2013 is lowered, the incentive for storage will increase. This will determine a higher price on both cash market and futures market.
It is expected that basis should tighten considerably as Bryce Knorr estimates in his last corn review article: “Hedge to arrive contracts are the best way to sell corn stored on farm, because basis should tighten considerably”.
Likewise, cash markets in the US are showing an increase in price of corn, due to transportation costs. Buyers from around the country search out supplies far from their usual sources, because of the drought.
In conclusion, corn price is expected to rise; therefore, short positions on the futures market are recommended for positive profits.
http://www.farmfutures.com/mdfm/Faress1/author/252/2012/10/WCR101212.pdf
http://will.illinois.edu/agriculture/usdareports/
Hi Mihaela!
Nice chart!
I think that Corn future price will increase gradually early in following week, but due to bound effect of huge decline in corn price on last friday. And after that, I predict that corn price will deline, but not as much as decline on friday. Based on my research, Argentina’s new export policy of corn encouraged domestic farmers to plant 8% more than the original plan. So, I believe that corn price will decline little bit later the following week.
But Mihaela, isn’t it better to take long position on corn rather than short position since you expected that corn future price will increase?
Anyway,overall, i enjoyed reading your blog! Hope you have a great night and see you in class tommorow 🙂
Hi Cindy,
Thanks for your comment and for carefully reading my post. It seems that I was thinking that selling at a higher price will be profitable, but instead of recommending long position I wrote “sell” position.
Learning for midterms is tiring for the brain, isn’t it? 🙂
See you tomorrow,
Mihaela
Good analysis! Enjoyed reading on transportation cost and storage cost. Thanks for sharing.