In my first week of trading, I took a rather careful move, since I want to get a flavor on how commodity futures work. Based on my own instincts, historical data on past performances, and reading some analysts’ speculations online, I decided to go long on four commodities’ future contracts (1 wheat, 1 cotton, 1 coffee, and 1 cheese). As of last week’s market closing day, my portfolio value goes up by 0.36% in overall. This small increase is contributed by slight increase in wheat’s and coffee’s price. Unfortunately, I am not so lucky with the price of cotton and cheese, which are valued less than my initial purchase price.

Wheat

Last Thursday (Sept 30th), I took a long position on a December 15 wheat future contract when the market price was at $5.12 per bushel. USDA had released the data for US’s crop stocks and production for grains recently. The data reported a lower forecast for this year’s domestic wheat harvest than what USDA had previously forecasted in the last report. For soft red winter wheat, production is estimated to be lower by 30 million bushels, which has seen its output level down 21% from previous year (Agrimoney).  Also, the dry weather condition affecting Australia and Russia, have put a downward pressure on wheat harvest . My speculation that price of wheat would go up was proven to be right. The newly released information from USDA and weather concern bumped up the price of wheat on Thursday and early Friday.

However, the price slightly fell down close to $5.13 per bushel before the market closed for that week. On Friday, Statistics Canada increased their forecast on wheat harvest (Agrimoney). Canada might have a better outlook on their harvest, as the weather across the Prairies is improving compared to the dry weather they had this summer that affected the level of output.  This will boost the wheat’s global stock level and help offset the poor harvest prospect in Australia and Russia. Keeping this in mind, I will probably take a short position on my wheat future contracts next week before price dips too low to the level where I will not gain profit.

Coffee

As for coffee, I took a long position on a basis that many analysts like Rabobank, a Dutch multinational bank,  is speculating price to move up, because of negative supply shock from dry weather (El Nino) implicating the coffee production in large producing countries like Colombia and Indonesia (Agrimoney). The market price of future contract for Dec 15 coffee has gone up by 1.47% since my purchase at $1.22.

Cotton & Cheese

I think it is perfect timing to end my blog entry this week by admitting I probably have made a bad decision to buy cotton and cheese in the first place. When you make a decision especially when it’s for investment including your assets and money, you need to do your homework. You need to research. Sometimes, your instinct may help with investment decision, but I don’t think it works for me this time with these two commodities. I should have probably taken a short position.

ANZ (Australia and New Zealand Bank) labeled the cotton futures market as “overbought” and speculates that the coming period will see a weak season for cotton price (Agrimoney). This argument is supported by the fact that USDA’s overestimate report last month on cotton’s forecast output didn’t do much on the price’s movement, which triggers analysts to question the purchasing power of buyers (Agrimoney). I also didn’t take into consideration that China as the largest importer of cotton has been cutting down their import. China’s 2015-16 imports is forecasted to reach the lowest level since 2002, a drop by 31% from previous year (Agrimoney). Another factor that contributes to a lower demand for cotton may be the competition cotton faces from cheaper substitute like synthetic fibres (Agrimoney).

The market price of cotton and cheese has dropped by 0.49% and 0.65% since my purchase. For next week trading strategy, I will try to diversify my portfolio a bit, by taking some short and long positions. I will probably offset one or two of my future contracts. Hopefully I will do better next week.

Until then, happy trading!

O