Fundamental analysis: most news reports describe events that have probably already been priced into the market.

Strategy

•           Key reports (non-farm payrolls, USDA crop reports, consumer confidence report, GDP growth, USDA export reports, etc.): can have a massive impact on prices the day they are released. Research predictions and forecasts from as many different sources as you can find leading up to the day the report is released and bid accordingly.

o   Outside markets (European debt crisis, other commodities especially energy and precious metals): subscribe to RSS feeds and daily market summaries sent to your email like Telvent DTN that give you charts of changes in prices and suggest items of interest to watch throughout the week or the next day.

•          I check my RSS feeds and daily summaries quickly to see if there are any key reports I should track. If not I keep the state of EU debt crisis in mind; if there was a new crisis during afterhours trading then I will lean towards a bearish outlook; if a new resolution to a problem might be reached then I lean towards bullish. If energy a gold/silver took a huge plunge in prices then I will research why and try to anticipate if it might affect agricultural commodities.

•           I found Twitter to be an excellent source of information from my industrious classmates and other sources I was following.

Technical analysis:

•           Overnight trading: one of my main early challenges was entering the market. I would always bid too high or too low.

o   Solution:  If you check the quote price after 4pm P.S.T. you will notice that trading is still occurring. This activity counts for the next day! The chart below shows the price for soybeans as of 8:11 pm on Friday Nov. 18, with a high price of 1177.4 and a low price of 1152.6, but the trading applies to Monday Nov. 21’s market day. So if I wanted to guarantee entering the market on Monday, I would go short at 1177.3 or long at 1152.7. The biggest risk even if you correctly guess if prices will go up or down is that, for example if prices fall and you go short, the high price rises to 1179.5 then you could have made more if you bid at 1179.4. Pivot points can be a solution to this.

•           Daily graphs: I copied and pasted our trading game google.doc’s prices into an excel file to track my profits. Using these prices I created worksheets that track the following graphs. Every day I copy and paste the updated prices into my workbook, drag and drop down to update profits and changes in the following technical charts and bid accordingly. Excel is an excellent time saver.

o   Corn minus Wheat Price Spread (https://blogs.ubc.ca/nchoykm/2011/10/27/week-of-october-24-28-trading-strategy/): I tried to see if there was a quantifiable link between the price of corn and wheat and noticed that there might be a preferred price differential of around 18 cents; if the price spread narrows to 10 cents for example then it will widen within a couple days. Fundamentals, like bad news out of Europe, will probably prompt the price to fall for both corn and wheat so I will bid short on wheat as it should fall by more. In the chart below, I employed this strategy on day 46 (Nov. 17) as the spread looked too narrow on day 45.

o   Pivot points (https://blogs.ubc.ca/nchoykm/2011/11/11/week-of-november-7-11-trading-strategy/): I wish I had learned about pivot points a lot sooner than last week. I found them to be an excellent way to determine if there a commodity is gaining bearish/bullish momentum. Using Support 1 (S1) and Resistance (R1) prices to set my bid prices allowed me to take a risk by not only relying on overnight trading prices and if the market was making big movements then I use S2 and R2 in my analysis.

o   Tie-breakers: sometimes fundamental analysis disagrees with technical analysis, or I might be on the fence. So the following tools were helpful to swing in me in one direction or the other. Unfortunately I learned about these tools before pivot points and I used them as primary tools for most weeks:

• Simple-moving averages (10, 20, 40 day)
• Moving Average Convergence Divergence (MACD)
• Commitment of Traders

 Final Week Activity

I employed all the strategies listed above. On Nov. 14 I relied on news from outside markets that seemed bullish for soybeans so I kept my 3 open long contracts and then offset on Nov. 15 because I thought this was the last day we could trade in soy. Using technical analysis I managed to offset with almost no loss. Fundamentals research coupled with corn-wheat price spread worked out really well for me on Nov. 16 by going short on 2 contracts of wheat and pivot points helped me to offset on Nov. 17 and still make a profit.

Final margin balance: 36,945

Thanks to Jim, Andrew and Javier for the learning experience!

November 7

Sunday Night Research:

Overnight trading:

Strategy: Since prices have broken through Friday’s support levels of 1210 and 1202, I decided to go short for soybeans at 1213.1 using 10 day (simple moving average) SMA as resistance.

November 8

Strategy: Decided to offset my 3 open short contracts in soybeans to prepare for new experiment.

November 9

Strategy: Did not have time to try new strategy yet so I used my corn-wheat spread as a guide. Since the difference was 2.6 cents I predicted that prices would widen. Overnight trading indicated a bearish outlook, so I went short for 2 contracts in wheat.

Outcome: success, both corn and wheat prices fell but wheat fell by 14 cents compared to corn by 4.

November 10

Wednesday Night research:

Fundamentals:

–Europe’s debt crisis could spark a mild recession which would have a bearish impact on commodities.

My Financial Times subscription featured articles on Italy’s economic instability: – bearish impact on all commodities.

– bearish outlook on wheat: USDA raised carryout for hard red weight by 20 million bushels

 Finally had time to toy around with a new strategy for the week: Pivot Points

• (Using previous day’s prices)
• Resistance level 2 = Pivot Point + High – Low
• Resistance level 1 = is Pivot Point x 2 – Low
• Pivot Point = average of high, low or close
• Support level 1 = Pivot Point x 2 – High
• Support level 2 = Pivot Point – High + Low

Soybeans:

I noticed that Pivot Point and S1 seemed to be trending up a little, while R1 was trending down while closing price was trending down. Since market has been below Pivot Point for about 4 days it seems to be gaining some bearish momentum.

MACD is below divergence and close price is below the 20 day (orange) and 10 day (blue) SMAs. The above charts seem to indicate the market is looking for a new support level, so I turned to Support 2 and the chart below indicates that yesterday’s closing price has brushed against S2.

Strategy for soybeans:  Overnight trading prices have hit the Support 2 price of 1170, if broken through, soybeans will look for a new bottom. Given the news in Europe it seemed likely this would happen but later in the night overnight trading prices began to rebound which implied the negative impact of news out of the EU had been priced into the market so I went long at 1170.1.

Wheat:

Prices have broken through the 40 day (grey line) SMA and the 10 day (blue) SMA has crossed the 20 day (orange) SMA; combined with analysis using pivot points:

Strategy for Wheat: leave my 2 open short contracts of wheat.

Outcome: net gain in profits

November 11

Strategy: since yesterday’s soybean prices broke through previous S2 levels I decided to go long on soybeans; and to offset my 2 open wheat contracts in case I try a new experiment next week.

Outcome: positive profits.

This Week’s Experimental Strategies:

•  Picking up on our TA Andrew’s advice, I decided to actively incorporate Commitments of Traders (COT) into my strategy
• Decided to learn about Moving Average Convergence/Divergence (MACD)

October 31

Strategy: coming off the weekend there was no major news or changes to technical analysis, but based on dramatic price decreases of overnight trading I decided to go short on 4 contracts of soybeans which resulted in profit.

November 1

Monday Night research

Fundamentals:

Soybeans: –  American dollar gained strength; while good weather forecasted for Argentina and Brazil crop planting (Intertemporal Law of One Price).

Telvent DTN Daily Market Commentary: “The direction of outside markets could be central to the grains Tuesday. If the MF Global situation has indeed calmed down, buyers may be back in the markets.”

Technical Analysis: Continuing my tracking of the Corn-Wheat spread showed prices seems to be in range where it likes to be: 18.8 cent difference.

 Strategy: prior day open interest was only 19404 down significantly from Friday’s open interest of 34,520. Furthermore, as of Oct. 25, non-commercial commitment of traders was 12209 short positions versus commercial commitment of 20405 long positions. The smartest play seems to be to offset my open soybean and wheat contracts.

November 2

Tuesday Night research

Decided to learn about Moving Average Convergence/Divergence (MACD)
Then visited a new charting site  where I overlaid the MACD oscillator against closing prices of soybeans along with the MACD histogram.

The charts indicated a downward trend but a possible rally soon, so I turned to the COT and simple moving averages:

Strategy: Open contracts seemed to be mostly long positions held by large (non-commercial) traders and as we are approaching the expiry date for soybeans I predicted they would have to offset soon so I went short for 3 contracts. Originally I planned on using 18 day moving average as resistance as my bid price, but tweeting with Hossein (who correctly predicted soybeans would rally) raised some doubts in my mind so I used the overnight trading high price as my bid. In retrospect somewhere between my original bid price and my actual bid price would have been optimal.

November 3

Wednesday night research

Fundamentals:

Telvent DTN Daily Market Commentary: + strong export and sales of soybeans were expected

http://www.pitnews.com/marketwrapup.htm: bearish bias for both corn and wheat based on technical analysis.

My own charting indicated that:

• The gap between wheat and corn seems to be too wide. The next step is to figure out whether the corn and wheat will raise or fall tomorrow. Overnight trading showed the price of corn falling while the price of wheat was rising.
• In the messy chart below (sorry!):

• The dark red jagged line is wheat; the light blue jagged line is corn; the smooth purple line is the 40 day simple moving average; the smooth pink line is the 20 day simple moving average; the smooth orange line is the 10 day simple moving average.

• Wednesday’s situation: 40 day SMA is over 20 day SMA and both were trending down; the 10 day SMA looks like it might be trending up but is above corn which is above wheat. (sorry for the poor resolution of graphs but UBC.blogs wouldn’t load the images i copied and pasted directly into my post properly past this point so i had to convert to jpg and upload)
  

In the charts below I look only at corn:

Strategy for corn: go short corn for 1 contract using between 20 and 10 day SMAs as my bid price.

 Strategy for soybeans: Price is between the 10 and 20 day SMAs while the 10 day and 40 day SMAs have converged; the former seems like it might cross above the latter. This suggests that price will rise but I am somewhat hesitant that it a repeat of Monday October 24 (above) will occur where prices rose, then fell and rose again. Going to assume bid below the 20 day SMA go long in case prices do end up raising this will offset the losses I will incur from my open short contracts.

Results

Corn: I totally misread my technical analysis manual I should have went long but I should have went long on corn instead of short. However, outside markets where news that Greece would not have a referendum sparked a rally.

Soybeans: My fat fingers somehow entered my bid as 1868.9 instead of 1186.9 which I then copied and pasted into my audit form. This would have incurred me about a $6/bushel lost on 15,000 bushels. Great thanks to our understanding and generous TAs, Andrew and Javier, for showing mercy when I noticed my mistake and contacted them immediately. Even though I failed to enter the market and made a loss on open short contracts, I still avoided a $100k loss in one day because of a careless mistake.

November 4

Thursday night research

Fundamentals:

• I think tomorrow’s non-farm payrolls will play a significant role and predictions seem to indicate an increase in employment  but this information has probably be priced into the market already especially since the expected increase is not substantial.
• My RSS subscription to Financial Times (www.ft.com) did not deliver any earthshaking news
• Overnight trading prices show decreases for all three commodities

Strategy: after yesterday’s careless mistake, I’ve decided to play it safe and offset all of my open contracts.

New Weekly Strategy: Wheat-Corn Price Spread

I am inept at Excel so I had to change the dates into numbers from 1-34 also I wanted to have clear trend lines so had to divide the y-axis into 2 cent intervals but this mangled the readibility =( sorry!

The price spread is a little easier to understand though.

By tracking the corn minus wheat spread, the trend seems to be:

• If corn is more expensive than wheat: the spread seems to like to be around the 18-20 cent range, if it narrows the spread seems to bounce back after a day or two.
• If wheat is more expensive than corn: the spread seems to like to be around the 16 cents range. If prices go over this they seem to return to this level after a day or two.

Fundamentals: During Jim’s lecture we learned that corn and wheat can be substituted as food and commercial feed and there would be an optimal price ratio that bounced back and forth in response to shocks. So this week I decided to focus on if this price spread was too narrow, the spread would widen and vice versa.

October 24, 2011

October 23 night time:

I decided to offset my 5 open short soybeans contracts so I could pursue a new strategy this week. Wheat versus corn spread.

(Wheat is always red and corn is blue. Charts created from http://markets.ft.com/research/Markets/Overview?ftcamp=traffic/email/tools/W1//memmkt)

Historical Charting Research – 9 month trend:

1 month trend:

5 day trend:

Strategy: The chart above uses 20 day moving average (orange line), not included but the 10 day moving average is even sharper and both trend lines lay above corn and wheat so I decided to go long on both. But to employ this strategy I had to offset my open 5 short soybean contracts.

Evaluation of strategy: Success, even though outside market played a role in giving commodities a bullish push, the spread widened from 8.6 cents to 14.4 cents.

October 25, 2011

Oct 24 night:

Source http://www.pitnews.com/marketwrapup.htm  (sorry I’m directly quoting but I don’t feel comfortable paraphrasing technical analysis):

Corn Technicals: “Momentum studies are trending higher but have entered overbought levels. The close above the 9-day moving average is a positive short-term indicator for trend. The market has a slightly positive tilt with the close over the swing pivot. The near-term upside objective is at 670. The next area of resistance is around 657 3/4 and 670, while 1st support hits today at 640 3/4 and below there at 636 1/4.”

Wheat Technicals: “Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. A positive signal for trend short-term was given on a close over the 9- bar moving average. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The near-term upside objective is at 656 1/2. The next area of resistance is around 642 1/2 and 656 1/2, while 1st support hits today at 621 1/2 and below there at 614 ¼.”

Soybeans Technicals: “The daily stochastics gave a bearish indicator with a crossover down. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The close below the 9-day moving average is a negative short-term indicator for trend. The daily closing price reversal down puts the market on the defensive. The market setup is somewhat negative with the close under the 1st swing support. The next downside target is now at 1187. The next area of resistance is around 1229 and 1254 1/4, while 1st support hits today at 1195 1/2 and below there at 1187.”

Strategy: since we’re at resistance levels for wheat with no major news and wheat has closed the gap with corn quite well, I’m going to play it safe and offset my wheat but price at 645. Offset corn at 652. These pricing strategies are a bit risky because normally I use overnight trading but this way I can hopefully offset without a loss and channel my resources into much more lucrative soybeans.

• Beans: since resistance is at 1229 and 1254 and yesterday’s close is at 1226; I will only bid 3 long contracts at 1225.3, just over overnight lows
• I will closely watch how the corn-wheat spread goes tomorrow.

Evaluation of strategy: I managed to offset my corn and wheat and still scrape out a profit thanks to soybeans. The corn-wheat spread expanded to 17.8 cents but I get the feeling my spread strategy will be most effective if the spread is too narrow or too wide, it might not be worth it to use this strategy if the spread is within 5 cents as it will be hard to determine which commodity will go up or down.

October 26, 2011

October 25 night:

Fundamental analysis for all three commodities: bearish as US consumer confidence report fell to lowest levels since 2009; upturn in US dollar

Strategy: since corn settled around 650 and wheat at 636 I think wheat will rise so I bid 3 long contracts at 635.1 and try to offset soybeans at 1238.

Evaluation of strategy: failed to enter the market because did not anticipate outside markets plunging prices.

October 27, 2011

Since I failed to enter the market yesterday I still held 3 open long contracts of soybeans and wheat each. I figured the market would bounce today as such a dramatic drop in prices should stimulate some buying from foreign countries; and thanks to outside markets it did and I made back all of my losses. Not much strategy to that and a bit of luck.

October 28, 2011

October 27 night:

Telvent DTN Daily Market Commentary suggests to watch overnight trading and news on European markets to get an indicator of how Friday’s trading will go. I strongly agree with this advice.

Turning to my RSS Feeds: as of 10:30 pm there was no new news.

Overnight trading: bearish trend for all three commodities.

Source (http://www.pitnews.com/marketwrapup.htm):

Soybeans technicals: “The consolidation has been mostly between support at the 20-day moving average of 1221.5 and resistance at the 10-day moving average of 1241, but the close above that and the high-range close above the pivot point would suggest a retest of the last swing high of 1283.75.”

Wheat technicals: “December wheat was sharply higher, pushing above the downtrend line drawn off the recent highs. Although breaking out to the upside of the wedge (i.e. 641.5), it is still in the range seen for the month of October. The bounce was impressive today, respecting support of an uptrend line drawn off the October lows (618 for tomorrow). The high-range close above the pivot point suggests a bullish bias for Friday. Next resistance is the October high of 665. Directionals have a choppy, slight uptrend, but hold mid-range values that could support a move in either direction. More of an upward correction has been expected, not even retracing 38% to 675 of the big September decline.”

Strategy: Tasha’s article from Twitter (@tashalin)  suggested that wheat sales were at almost five month lows. Also the spread between corn and wheat had narrowed to 7.4 cents and it seems more likely that wheat will fall relative to corn. So I decided to offset my 3 open long soybean contracts as well as my wheat 3 open long wheat contracts but go a little further by bidding on a total of 5 short contracts. I am going to take a risk because, as the graph below indicates, both corn and wheat lie above the 20 day moving average and whenever wheat’s gains (in percentage lies almost 2% over corn, the spread narrows within a day or two. Furthermore, if you look at last Friday, when both price’s lines lay above the 20 day moving average and there was a gap in the price spread, the gap narrowed and plunged below the trend line the next day.

1)      Impose 6 open contract restriction

2)      Set up week for Wednesday’s USDA report: “defensive” strategy.

3)      Evolve my “offset with minimal losses” strategy. Last week: I offset by waiting for the trend to go in the direction I wanted to bid to offset. This week: use charting to offset with minimal losses even if the trend is not in my favour.

Tuesday Oct 11

Strategy: set myself up for Wednesday’s USDA report and get in line with 6 open contract limit. As Andrew the T.A. mentioned last week that the market was due for a rally, and I did a lot of research Sunday night not knowing we would not be able to bid for Monday, I decided to go long using Monday’s overnight trading low prices. Open contracts after offsetting: 1 long soybeans, 2 long wheat.

Wednesday Oct 12

Tuesday Night Research:

Soybeans

Fundamental analysis: +   Stronger than expected export demand, talk of China buying, lower expected yields and harvest acreage

Technical analysis: 20 day moving average of 1251 as resistance

Wheat

+  Russia caps exports of grain

+ fund traders actively buyin; strength of soybean rally supporting aggricultural commodity market

Technical analysis: broke through 10 day (625) and 20 day (646) moving averages which were resistance but should now be support.

Defensive Strategy for USDA report surprises: The last two USDA reports I’ve seen a pattern where I use forecasts and predictions to correctly feel which way the market will go. During the morning things seem to go as researched and then the market moves in the opposite direction in a dramatic way. Armed with this knowledge my defensive strategy centered on taking advantage of this reversal. If you have existing short contracts because you predict prices will fall, you will want to defend your margins against a possible sharp rise. E.g. prices are at 10 then drop to 5, then settle at 15 you basically make negative 5. The settle price is usually lower than the high price so I would go short at 20 and the profits I make from this new bid (20-15=5) will offset the losses from my existing contract. Opposite should be true for long contracts which is what I had.

• Wheat: I used 625 as support for my defensive strategy and bidding 628.9
• Soybeans: I used 1192.8 which is 18.6 cents below overnight trading lows which show a about 10 cents drop from prior settle; overnight lows are about 15 cents below last price. So if they drop another 10 cents or so I will probably enter the market just above the low and at if the last and low prices remain about 15 cents apart I should make 15 cents profit. But if the market actually moves in the direction I predict then I will not enter the market.

Evaluation: Did not need my safety net for soybeans. How about for wheat?

Critical flaw in my logic: if the market does not exhibit a bell shaped curve pattern and just bottoms out I double my losses.

Lessons: wheat is no longer in a Stockout situation based on CBOT price spreads for next couple years.

Next version of defensive strategy: instead of doubling up the type of open contract that I have, I should use the 20 day moving average as my safety-net prices but bid long if I have open short contracts and vice versa. If I had in the case of wheat I would have entered market at 646 and then I would have offset my long position and made profits at the same time.

Thursday, October 13

Wednesday night research:

–          Checked that soybeans are stocked out by looking at cbot prices. Prices seem to be moving in the right direction, so I decided to keep my long contract.

–          Wheat: The lows found support at the 10-day moving average of 623.

–          Strategy offset: my long wheat contracts (miscounted though and accidentally went short by one too many).

Friday, October 14

Thursday night research:

+ Soybean harvest in Midwest slowed again due to weather

+ Smaller US supply of beans

+ (Telvent DTN Daily Market Commentary) strong buying from commercial and non-commercial traders.

Strategy: Offset my contracts because I probably will not trade next week, but if I go short with soybeans strong rally I will lose profits. I took the difference between yesterday’s close price and the 20 day moving average; added this difference to overnight trading high price and went short at 1269.

Evaluation: success I offset without having to wait for a day that soybeans will fall and only lost $40, which my gains from my open contract more than offset.

Note: miscounted how many open contracts of wheat I had and did not offset.

Weekly Strategy:

1)      Get “gambling” under control. Focus on how to offset with minimal losses or maximum gain.

2)      Leave corn out of my portfolio.

3)      Use more charting in my strategy.

 Monday October 3

Sunday night open contracts: 4 long corn, 2 long soybeans, 7 long wheat.

Sunday night Fundamentals Research

Corn:

(-) USDA finds extra corn

(-) Grains stockpile could be indicative of demand slump

(-) European wheat prices down making them more attractive compared to US wheat

Strategy: bid for 5 short contracts on corn, soybeans, wheat.

Outcome: failed to enter market for wheat by bidding too high; positive profits on soybeans, negative profits on corn and net positive profits from open contracts.

Lesson: getting out of the corn market as there are too many factors to take into account.

Tuesday October 4

Monday night open contracts: 1 short corn, 3 short soybeans, 7 long wheat.

Monday night Fundamentals Research

Corn: no significant news

Soybeans: no significant news

Wheat: no significant news

Overnight trading

Corn and soybeans seemed bearish.

Strategy: heed Jim and Andrew’s warning of too many open contracts so offset by bidding on 4 short wheat contracts, leave my open contracts for other two commodities.

Outcome: Bid too high on wheat and failed to enter the market thereby making negative profits from open 7 long contracts.

Lesson: start to pay more attention to resistance levels when going short and support levels when going long. Combine with last week’s strategy of using overnight trading as reference point.

Wednesday October 5

Tuesday night open contracts: 1 short corn, 3 short soybeans, 7 long wheat.

Tuesday night research

Fundamentals research:

(+) not much fundamental action going on with corn and soybean but pay attention to wheat for a rally because prices seemed to have found a bottom.

(+) la Nina would have biggest impact on wheat raising concerns of drought

Technical Analysis:

Corn: overnight trading seemed to be bullish.

Soybeans: overnight trading seemed to be bullish.

Overnight intraday wheat trading:

According to Pittnews.com: 596.75 should be support with resistance at 637. I checked overnight trading and price for wheat was around 610.4

 Strategy: since corn and soybeans overnight trading was bullish and I held open short contracts, today would be a good day to offset them and possibly make a profit. Since I failed to offset my open long wheat contracts yesterday and took a loss on them, I decided to let them ride today to recoup some contracts rather than offsetting by going against the grain (pun intended).

Outcome: Positive profits across the board.

Thursday October 6

Wednesday night open contracts: 7 long contracts of wheat

no major changes in fundamentals but lots of outside market influences: European finance ministers agreed to help struggling banks; euro rose against other currencies

Strategy: offset 4 of my long contracts to bring myself within a day’s bid of a quick turn-around in anticipation of the Non-Farm Payroll release on Friday. Building on Tuesday’s lesson, using 596.75 as support and 9 day moving average 633.2 as resistance, I decided to bid at 631.9 (0.1 cents below overnight high price):

Overnight intraday trading:

Outcome: success

  Friday October 7

Thursday night open contracts: 3 long wheat.

Thursday night fundamental research

Soybeans: (+) Next year Brazil’s output in soybeans predicted will fall for the first time in three years. Using the Intertemporal LOP, lower supply of soybeans in future will raise the price of soybeans today. Looking at overnight trading, Aug 2012 contracts dropped 2 cents (compared to other future contract expiry months this was the least) from prior day’s settle. But September Expiry I noticed a big price drop of 5 as cents as well as further decreases until November which indicates a stock-out.

(-) (-) (-)  “The Cropcast estimate for 11/12 world oilseeds production is 438.05 MMT, up 380 TMT from last week due mainly to improved rains in Brazil soybean areas” so increased Brazilian supply will lead to lower US prices. Also limited rains in will help harvesting to go well. In Brazil and Argentina more will allow planting and germination there to improve for next year’s crop. Using Intertemporal LOP again this should depress current prices.

Wheat: (-) (-)(-)  Rain would help the US, eastern Europe, western FSU, Argentina, and South-eastern Australia.

(+) Yesterday’s report of US wheat exports was in line with USDA expectations.

(-) (+)  EU granted export licenses for 349,000 tonnes of wheat but cumulative exports of wheat were almost half compared to last year.

Technical Analysis: my usual site was down so I turned to overnight trading which I address further on.

 Macroeconomic factors: Non-farm payrolls

(+) non-farm payrolls predicted to be optimistic

(+) this link corroborates the above link

 Strategy: Andrew’s lecture on Tuesday suggested that non-farm payrolls have a pretty strong effect on commodity prices.

Soybeans: Given the demand group’s research that global demand for soybeans has fallen this year, and prices have fallen 15% over the last 4-5 weeks (http://www.thecropsite.com/news/9238/soybean-prices-down-on-consumption-uncertainty). Given that we are in a stockout situation, the low prices should have stimulated consumption especially since soybean harvest is ahead of schedule (http://www.argusleader.com/article/20111007/NEWS/110070312/Season-wild-weather-produces-hit-miss-harvest). So I postulate that forces driving a lack of demand for soybeans beyond income are at work and decided to go short on soybeans for 3 contracts.

Outcome: made a positive profit.

Wheat: According to Rick from 502 consumption of meat increases with income and wheat is used as livestock feed. Furthermore, exports of wheat were in better shape than corn and soybeans. Demand group research showed that Japan, Mexico, Korea and Taiwan are the top importers of US wheat so aggressive pricing from the Black Sea region would have less of an impact on US markets. Thus, the income effect from the non-farm payrolls should have a much more significant effect on wheat. I went bid for an additional 3 long contracts of wheat on top of my 3 open long contracts.

Outcome:

The chart above shows my predictions were probably correct as the non-farm payrolls were released we see a huge jump in the prices. But then prices crashed probably due to outside markets.

Lessons: Research the link between wheat and copper to incorporate into my bidding strategy. Find out exactly what happened after 10 am.

New Strategies of the Week

New Quantity of Contracts Strategy: Use 3 contracts as my baseline. This allows me to be flexible to market changes on a daily basis. For example if I am currently short 3 contracts on soybeans and breaking news like China increased its imports 30% over expectations, I can offset by going long 4-5 contracts depending on how reliable I think the source is.

 New Strategy learned from FRE 501: I look not only at December or November 2011 contract prices, but further into 2012 as well.  Since wheat shows decrease in the long-term future with a small short term increase, I decided to maintain bearish outlook on wheat. But in line with my new Quantity Strategy, I went offered 2 of my short contracts of wheat.

 New Price Strategy: Use overnight tradig to set bid prices.

Monday September 26

Sunday night research: (click on the + or the – to follow the link to see why I think each effect would be bullish + or bearish –)

Corn:

–          Weather in Ukraine (-)

–          Brazil, Argentina, US farmers switch crops to higher yielding corn. Inter-temporal LOP suggests more corn supply in future will lead to decrease in prices today (-) 

–          Oil Prices down (-)

–          Strategy: short on corn

Wheat

–          Weather in Ukraine (+)

–          Strategy: Long on wheat

Soybeans

–          Brazil, Argentina, US farmers switch crops to higher yielding corn. Inter-temporal LOP suggests less soybean supply in future will lead to increase in prices today (+)

–          India’s soybean meal exports forecasted to increase by 25%  (-)

–          Oil Prices down (-)

–          Strategy: no trade

Tuesday September 27

Monday night research:

Corn:

–          Oil prices increased (+)

–          Technical analysis: Corn support at 630 with resistance gap over 682 and directionals are oversold (+)

–          Live cattle futures sharp increase (+)

–

Soybeans:

–          Oil prices increased (+)

–          Technical analysis: Corn support at 630 with resistance gap over 682 and directionals are oversold (+)

–

Wheat

–          Technical analysis: 624.25 as support, 647 is 4-day moving average and resistance at 10-day moving average at 672 (+)

–          Live cattle sharp increase (+)

Macro factors:

–          Sources like Credit Suisse and Goldman Sachs say the fundamentals predict price increases, and last week’s price decrease was due to risk-aversion. Further livestock feedlots’ demand for wheat should lend support (+)

–          Traders will likely be buying back their corn and soybean contracts and today crude oil improved which should boost corn and soybean prices (+)

–          Corn will be pushing soybean prices up as farmers who switch from the latter to the former (which provides higher yields) could lead to low inventory levels of soybeans by next summer. The intertemporal Law of One Price suggests we should see an increase in the price of soybeans (+)

Strategy: long across all three commodities

Evaluation of FRE501 Inter-temporal LOP strategy: success

Evaluation of Overnight trading to set prices: success! Entered the market with 5 long contracts of corn, soybeans, wheat by setting bids to 0.1 cents above the overnight Low price. Low prices of corn and wheat dropped lower than anticipated but at least I entered the market in correct direction and entered soybeans 0.1 cent above day’s low price.

Wednesday Sep 28

Tuesday night research:

Corn:

–          (+): Boost in energy prices, Korean imports of corn, weaker US dollar

–          (-): greater supply than USDA anticipated

–          Technical analysis: Slight bearish trend today for corn despite general oversold conditions.

Soybeans:

–          (+): Surge in energy prices, weaker US dollar, less of the crop harvested than anticipated at this point.

–          (-): Crop condition at 53% excellent.

–          Technical analysis: Slight bearish trend today for soybeans despite general oversold conditions.

Wheat:

–          (+): Higher energy prices, weaker US dollar, weather conditions within US and in UK.

–          Mixed factors: Bangladesh and Tunisia looking to buy. But based on the Demand group’s research last week, Brazil and Argentina export most of their wheat to these regions so this could have no effect on US markets. However, European wheat hit a one week high so depending on trade patterns this could potentially raise global wheat prices. I lack the knowledge to be able to describe these events as bullish or bearish.

Lisa tweeted a report that corroborates my own research: http://www.futuresmag.com/News/2011/9/Pages/Buyers-looking-for-bounce-in-corn.aspx

 Strategy: No significant changes in fundamentals (as bullish bearish factors seem to cancel each other) No trade

Thursday September 29

Strategy: Panic from losses from not doing anything yesterday. Research in fundamentals and technical seems to have failed me. Based entire strategy on overnight trading trend which seemed I should offset my contracts long contracts in corn and soybeans which were losing, but keep my long wheat contracts.

Evaluation of strategy: success as I made positive profits.

Friday September 30

Strategy:  Researched tweets and trader discussion boards regarding anticipation of USDA Quarterly Grains report. Consensus seemed to be go long on corn and soybeans (1) (2).   Also corn disease  as well as short covering recovery seemed to suggest going long would be a great idea.

Logic of my strategy: when fundamentals fail to give a strong signal, attempt to anticipate herd behaviour and bid in accordance with the pack.

Evaluation of basing strategy on less than official sources of research 25k+ loss

Lesson: trust my own fundamentals research.

Monday Sept 19

Thought process: Based on the research found in the Demand and Supply Expert group blogs coupled with the stronger American dollar, I predicted that prices would fall and decided to go short. Unfortunately, I did not anticipate the drop would be that large and bid on short positions over the daily high prices.

Daily Net Profits: existing 3 short contracts for wheat:  (688.2-673)*3*50 = 2280. Added this to my margin.

Lesson of the day: start to learn about technical analysis. My previous pricing strategy looked at the daily high prices, but going to try switching to the moving average.

Tuesday Sept 20

Jumped on the bull-market bandwagon for corn by bidding for one long contract at 678.8. But the low price for the day was 690.2 and I (luckily) failed to enter the market.

Thought process: Did not come across any news about major changes regarding demand by Monday afternoon, and encouraged by yesterday’s price drops, I decided to pursue short bids for soybeans and wheat. However on Tuesday, rumours that China was price shopping from the US and South America sparked a market rally. I successfully won my bid on 5 short contracts for wheat at 670 and earned myself a nice burn with the settle price of 674.4. Likewise I won my bid on 5 short contracts for soybeans at 1340.8. Luckily, with a settle price of 1338 I still make a profit.

Profits

Existing Contracts : Short 3 contracts of wheat: (673-674.6)*3*50= -240 was added to my margins

New Bids:

Short 5 contracts of wheat: (670-674.6)*5*50=-1150 was added to my margins

Short 5 contracts of soybeans: (1340.8-1338)*5*50= 700 was added to my margins

Daily Net profits: -210 – 1100 + 700 = -690

Lesson of the day: lower the quantity of the contracts I bid for and fundamentals are not the be all end all.

Today’s strategy re-evaluation: IMF report predicted lower prices for commodities due to global economy slowdown and no major changes with the fundamentals. Should I offset my short positions and possibly risk the market returning to what fundamentals predict? Or should I have faith in yesterday’s strategy and hold strong hoping that a return to the fundamentals will offset today’s losses?   I’m favouring the later strategy at this point.

Wednesday Sept 21

I should have trusted my research and kept all 15 short contracts from yesterday, instead I offset all of them out of panic!

Lesson:*overnight trading is NOT a definitive indicator of the next day’s trends*

Monday night overnight trading was around +12 for all commodities before Tuesday’s market opened, but I upheld my bearish outlook. Although as I thought it would, the market returned to my predictions based on fundamental analysis today, but I chickened out because prices were about 6+ cents before Wednesday.

Thought process: Also I conducted some research which supported a bullish outlook: 1. US announced sale of 120,000 soybeans to china and Chinese demand for Soybeans next year  2. oilseed consumption predicted to outpace production,  3. palm oil rebounds in Malaysia. 1. implied that import demand from China could be picking up which would lead to price increase. 2. If consumption overtakes production, then excess demand would lead prices to increase. 3. Palm oil and soybeans are used as bioenergy and can be substitutes; if the price of the former increases then it would make the latter appear cheaper in comparison leading to increased demand and higher prices.

 Profits

Existing Contracts:

Short 8 contracts of wheat: (674.6 – 666.6) *8*50 = 3200

Short 5 contracts of soy: (1338 – 1320.4)*5*50 = 4400

New Offers:

Long 5 contracts of wheat: (666.6 – 676.7)*5*50 = -2525

Long 5 contracts of soybeans: (1320.4 – 1341.9)*5*50 = -5375

Daily profits: -300

Thursday Sept 22

Thought process: The report from the US Fed sparked fears which overrode supply concerns. I tried to bid for 5 short contracts for all three commodities, but misjudged the price drop and failed to enter the market by bidding too high. This has happened to me in the past, but instead of looking at the high price trend I started to use the settle price.

Profits

Daily profit from only existing contracts:  3 short contracts of wheat (666.6 – 633.6)*3*50 = 4950.

Friday Sept 23

Thought process: Reports (1, 2) like  indicated that soybeans were looking bearish, plus technical analysis showed that soybeans had broken through previous support levels of 1300 and was positioned to gap lower again. Similar story for wheat and in the absence of fresh news to alter a bearish fundamental outlook I decided to go short on both. I decided to play it safe for soybeans with 3 contracts, but since wheat had shown a steady decline almost all week, I gave in to my greed in an attempt to recover from previous losses by bidding for 5 contracts.

Profits

Existing Contracts: Short 3 wheat: (633.6 – 640.6)*3*50 = -1050

New bids:

Short 3 soybeans: (1283.8 – 1258)*3*50 = 3870

Short 5 wheat: (636.8 – 640.6)*5*50 = -380

Daily Profits: 2440

Lesson: When prices approach support or resistance I should back off instead of going harder until it is certain whether the market will break through these levels. Also, it would be wise in the future to compare prices in other major markets.

Next week’s game plan: Researc what happened in the past when commodity prices bottomed out. How did traders react afterwards; what factors caused the market to bounce; were there any precursors or signs?