In the past week, we just had an assignment with a question where we needed to examine the USDA reports on Crop Production over a historical time period and see whether there’s link between the shocks of futures prices and the released information. What’s more interesting is that a new UDSA report on quarterly Grain Stocks was released on the past Friday and caused the corn, wheat, soybeans futures prices to spike up.
I didn’t pay attention to USDA (http://www.usda.gov/wps/portal/usda/usdahome) prior to the assignment or the Friday shocks. Its official information really plays a major role in affecting the futures prices. The daily news prior to the official reports could be affecting the futures price too but those are more like expectations / estimations, and the official reports are stating more accurately about the situations supported by government statistical data. Sometimes, if there’s large discrepancy between the estimations and the actual situation, it would probably cause a turning point for the futures prices. It’s worthwhile studying this USDA site further since I am not sure of what other information it offers.
I have been using the sites I referred to in the previous week. I should start looking for more reliable sources for information.
I knew that wheat and corn futures prices fell quite a bit last week before Friday. I was planning to went in the wheat or corn futures market and take a long position at their low prices. After I decided to do that and before I manage to do so, the corn and wheat futures prices already jumped a sky high on Friday morning. I started to doubt whether I should still go in the market and what position I should take. I remember there were news about some kinda of report to be released on Friday, but I wasn’t sure what it was about. Thanks to fellow student, classmate Ishrat’s tweet (@ishrat_gadhok)[1], I found out that USDA released the quarterly Grain Stocks report about the stocks of corn, wheat, soybeans having gone down[2]. The futures prices of corn, wheat, soybeans all went up at the result of that, expecting shrinking supplies of all 3 crops.
I expect the soybeans futures prices to go higher so I have placed orders to offset my short contract and go long. I also ordered to offset my long contract because its price now is still lower than my price in when I purchased my contract last week. I placed a long contract again to get in at a lower price hoping to make a bigger profit when the price indeed goes up. Soybeans can be substitute to corn. Since corn futures prices have already gone high up and soybeans haven’t yet, there should be more room for the soybeans futures prices to rise.
I expect the corn and wheat futures prices to continue to go up but I am not sure how long that will sustain. I will go ahead with a long position in both of corn and wheat futures and pay close attention to the news closely.
On Monday, I placed orders in the market with a short contract of Nov 2012 soybeans and a long contract of May 2013 soybeans. They didn’t get processed until Tuesday and I left them till the end of Friday. I thought the Nov 12 soybeans price would go down because there had been news about unexpected good harvest of soybeans; with better than expected production/ supply of soybeans,the futures prices of them should be going down. On the other hand, there was the news that China [1], the largest soybeans importer from US, would continue selling its soybeans reserves well into 2013 to contain its inflation domestically. I suspect this news would cause the near soybeans futures prices to go down and the far futures prices to go up, with the expectation of a lower level of export demand in the near future and (at least) back to normal export demand in the far future. Altogether, I made the decision to have a short position for Nov 2012 soybeans and a long position for May 2013 soybeans.
A week went by, the soybeans futures prices went down and back up to the prices level that’s still lower than my prices in. I made a gain of about $250 (my gain from a short on Nov 2012 less my loss from a long on May 2013 soybeans). The re-bound on Friday (Sept. 28) was probably a result of the release of USDA Grain Stocks report where it stated that the soybeans stocks was down 28 percent [2]. In fact, the corn and wheat futures prices had a large rebound on Friday as well after the plunges earlier. The prices of a few corn near futures even hit a daily limit up.
My “prediction” of the far futures of soybeans was not correct or the one was just not enough/sufficient information for a great impact on the far futures. However, the daily news that affect the spot prices are really impacting the futures prices as well for the link between the spot price and futures price is strong, the closer the stronger.
I started out my research with Google search engine and I did notice a few websites that follow the commodity market quite closely and produce timely updates about the crops in the commodity market. Here are a few websites I found this week that provided me useful information:
Reuters[1] is the world’s most renowned news media, it is widely recognized as a credible source of global news and analysis, etc.
You can find the news about the crops: corn, wheat, soybeans by using their search engine (For example, for soybeans news, you would have the most updated lists of news here: http://www.reuters.com/search?blob=soybean).
This website is published by Government of Albert, it has information, news about Alberta and Canadian agriculture business and market; It also have information,news about the global agriculture market. I found the information of US crops production areas from their site (http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/sis5219).
What’s more, it has a weekly audio update interviewing industry professionals about the Grains and Oilseed market; global and local highlights, some analysis and forecast will be delivered every Friday. The report they had this week about soybeans has a good summary of the soybeans market and more (http://www1.agric.gov.ab.ca/$department/newslett.nsf/all/cotl19969).
Bloomberg (http://www.bloomberg.com/): It is an American multinational mass media[2]. Quite a few news articles about soybeans I read this week were published by them.
I will continue with the soybeans futures market and get to learn more about it. I also need more information to support my judgement calls besides weather.
First of all, since, as a raw material, soybean is the primary source of biodiesel in the united states [1]. It is important to look at the biodiesel market. What happens in the biodiesel market (e.g. supply & demand of biodisesel, policy on boidisel, etc) would cause direct or indirect impacts on the soybeans futures market. Secondly, I could study the close substitutes to soybeans for human consumption (e.g. other beans or legumes that are high in proteins,etc.) and for the production of bio fuels (e.g. canola, corn). Change in one market might affect the other market due to the substitution effects. Lastly, I should study the matter related to the storage of soybeans. The quantity and quality of soybeans are being stocked up by the producers over the seasons would make a difference on the soybeans futures market too.
On the other hand, the price of soybeans futures appear to have a upward trend over the months of May to August this year due to the drought. For example, the graph below shows that the price of soybeans Jan 2013 contracts is gnerally going upward from May to August. This upward trend reflects the expectation of the tightened soybeans supply as the drought continues. However, it also appears that the price trend has turned to go downwards since the beginning of September. Is it to do with the harvest that the harvest is better than expected? I should pay attention to this and see what is happening.
Price chart of soybeans futures Jan 13 contracts from May to Sept. 2012 Source: CME Group, Agriculture Products, Soybeans Futures [2] I could start looking at the corn or wheat futures market if time allows.
In the US the biggest soybean producer, the planting period is late April to June and the harvest period is late September to the end of November
The planting and harvest period in countries in the Southern hemisphere is about the opposite to the countries in the Northern hemisphere.
In the US, the harvest period of soybeans has begun. The major production of soybeans is at the Midwestern states [3] and the drought since May[4] this year has hit the Midwest of the US most severely too. Since soybeans growth depends on natural rainfall, the soybeans supply has been expected to be tightened, resulted in the general increase of the price of soybeans futures.
US Soybean Production Areas Source:Alberta.ca, Agriculture and Rural Development [3]
However, it’s reported that there was rainfall in the Midwest and Delta areas in the US at the beginning of the week. I believed that the rainfall would cause the high price of soybeans futures to go down. That news was reported on Tuesday and I went in the market on Wednesday with a short contract for Jan 2013 soybeans. On the first day in the market, I lost about $300 because the settle price of that contract on Wednesday actually went up a bit from Tuesday’s . On the second day, the market seemed to have picked up the rainfall news and another news about a higher expected yield of soybeans[5]; I gained about $ 2500 for a bigger price fall on Thursday. On the third day, I lost about $200 for a price increase and I went long to offset my order. Overall, I gained about $2000 over that 3 days Jan 2013 soybeans contract for short.
Although there were ups and downs of the price (volatility), it tend to be going down with a bigger scale (a downward trend).
