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I opened the week by taking a long position on two soy contracts and a short position on two contracts of corn on the 25^th. Checking the markets early the next morning I decided to exit my long soy position at a stop loss, taking a loss of $4000. Feeling the sting of a healthy loss in the soy market, I decided to double down on my successful position in the corn market and purchased an additional three contracts on the 27^th, setting a stop loss order on my five corn contracts to prevent a loss from a sudden shift in the markets. Sure enough the opening hour of the 28^th saw a dramatic price spike that I was completely unprepared for. While I lost about $5500 from this unexpected market shift, it could have been much worse. Hind sight I should have closed the original three corn positions on the 27^th instead of betting big. Also, my limit should have been no greater than the initial purchase price.

I noticed on the 27 that the wheat price was nearing its lower holding price so purchased three in expectation of a moderate market rally. I plan to exit the position Monday morning given the state of the market.

The bullish volatility of the market can likely be blamed on a quarterly report on corn that came out on Friday placing stock estimates at 988 million bushels; this is below the previous estimate of 1.11 billion. We can expect the additional volatility in the coming days as the market adjusts to this new, pessimistic outlook. As of this evening I’m sitting long in all commodities.

Well, it’s been an exciting first week of trading. It appears as though the markets are beginning to stabilize after a summer of extreme volatility. However, questions over the strength of the US dollar and and a tremendous amount of product yet to be harvested means we are not out of the woods yet. The only thing that remains certain, the next nine weeks are bound to be exciting!

What went right

On September 12 I took a sort position on five December corn contracts at a price of 773.75. I chose to go short on corn for a variety of reasons. The first reason was purely technical. The daily price had fallen consistently since August 22^nd, from its peak price of 840. I saw the trend and felt good about it. The second reason was more fundamental. After news of drought hit in June, corn prices skyrocketed. I felt as though the market had over reacted. I had known from past experience that news of a disaster will result in an initial shock followed by a moderate recovery with price eventually stabilizing above the original price, holding all else constant. It appears as though we are approaching a period of stability; however, another shock could send the market spinning. For future trades I will be paying special attention to policies coming out of Eastern Europe and to the strength of the US dollar, two factors i did not consider when taking this position. I closed my position on September 17 by taking a long position at a price of 756 for a realized gain of $4245.

The road ahead

Corn prices seem to me stabilizing between 757 and 740. It could be an ideal time to take some day positions, protected with stop orders. Wheat prices continue to be volatile with a moderate upward trend since the 19^th. There appears to be an established floor between 860 and 875 with a ceiling around 925. The market has operated within this band since mid-August. I know of no reason to think that the market will move out of this zone in the immediate future. The soybean market is extremely bearish. With harvests coming in I expect to see stabilization within the market to mirror what is occurring in the corn and wheat markets.

Cool sources of information

 This, http://futures.tradingcharts.com , is the coolest site I have found for futures data. This site is updated down to the minute, complete with caned analysis and relevant headlines. Each commodity has options to view price data as monthly, weekly, daily, or hourly, in bar or candlestick form. On each chart page, contract specifications are laid out in a clear and concise manner. Recent news headlines are posted along with their time of publication. Analysis is auto produced by observing and commenting on trends in the moving averages and other common indicators. As a friendly word of caution, take these analyses with a grain of salt, they are produced without consideration of any fundamental market forces. The site is easy to navigate and easy to use even by traders with little or no experience. I highly recommend this site all members of the MFRE team as a solid starting point when analyzing any commodity.  I plan to use this site heavily throughout the remainder of the project.

I was asked to discuss and summarize a recent interview with Gil McGowan, the president of Alberta Federation of Labour (AFL), on cbc Radio (link at the end of my ramblings). Here’s the “too long; didn’t read” version of it for those lazy time efficient readers out there;

The NGP will connect Alberta’s oil sands reserves with the rapidly growing Asian market. Supporters claim that the construction of the pipeline will result in 1150 new jobs and $4.3 billion in labor income during the construction phase of the project.

Asian markets have few sources of oil and are essentially limited to trading with members of the OPEC cartel. As such their market price for oil is much higher than in comparable markets with multiple sellers. This “Asian Premium” is expected to shrink somewhat as Canada enters the market (a byproduct of competition). However, the aggregate of foreign and domestic demand should result in an increase in price received for Alberta’s crude oil producers (A big old outward shift in demand), increasing the price paid by domestic refineries. The domestic refineries will need to hire fewer workers and will increase the price of finished products to compete with Asian competitors with lower marginal costs. The AFL estimates a loss of 8000 jobs and a $750 million decrease in domestic GDP due to this potential increase in the cost of oil.

Assuming there is validity to the AFL’s findings, the NGP could cause long term harm to the Canadian economy, and that’s not even discussing the potential for environmental impact. But that topic will need to wait for another blog.

See; http://www.cbc.ca/asithappens/episode/2012/09/04/the‐tuesday‐edition‐45/