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Sep 23 / Roson

First week up and down with Soybean futures – What Went Right?

This is my first trade and I started my trade with soybeans.

First of all, I wanted to know more about soybean itself and as a commodity:

  • What are they used for [1]?
    • Direct human consumption, processed into other foods for human consumption
    • Processed into animal feed
    • Used to produce biodiesel fuel
    • Used in the production of industrial products like oils, plastics, etc
  • Who are the major producers and consumers [1]?
    • The US, Brazil, Argentina and China
    • The US is the largest consumer
  • What are their planting and harvest seasons [2]?
    • 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).

 

 

References:

1.Wikipedia. (2012, Sept.).  Soybean.  Retrieved from http://en.wikipedia.org/wiki/Soybean

2. Kowalski, Chuck. (n.d.).  Soybean Planting and Harvest Seasons. Retrieved from http://commodities.about.com/od/profilesofcommodities/a/soybean-growing.htm

3. Government of Albert. (2011, Jan. 01). Market Clippings: US Crops – Where Are They Grown?.  Retrieved from http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/sis5219

4. NOAA National Climatic Data Center. (2012, May-June). State of the Climate Drought May 2012. Retrieved from http://www.ncdc.noaa.gov/sotc/drought/2012/5

5. Wilson, Jeff. (2012, Sept. 20).  Soybeans, Corn Decline on Signs Midwest Rain Boosts Crops. Retrieved from http://www.businessweek.com/news/2012-09-20/soybeans-corn-decline-on-signs-midwest-rain-boosts-crops

 

 

Filed under Trading Game, What Went Right/Wrong
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Sep 10 / Roson

Canadian price of crude oil would rise with the creation of Northern Gateway pipeline

Warm-up Assignment:

Listen to the first segment of Part 3 of CBC’s “As It Happens” for Tuesday, September 4th titled “Northern Gateway Hearings. The Alberta Federation of Labour says the Enbridge pipeline project will actually eliminate Canadian jobs”:

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

The Alberta Federation of Labour has two main criticisms of the Northern Gateway pipeline: (1) Canadian jobs would be created if the crude bitumen was refined in Canada and then exported rather than being exported directly; and (2) The pipeline will reduce the “Asian” premium, which means a higher price of oil in Canada and job loss due to the higher processing costs for Canadian refineries.

In about 200 words carefully explain why the creation of the Gateway pipeline from Alberta to Kitimat BC will raise the price of crude oil for Canadian refineries. Be sure to include proper references to your background material.

 

According to Gil McGowan (President of Alberta Federation of Labor), the creation of Northern Gateway pipeline will raise the price of crude oil for Canadian refineries. Oil refineries take crude oil as the raw material for production and convert it into consumable products like gasoline. Currently, the oil suppliers for Canadian refineries are primarily domestic, and the buyers/consumers of their refined products are primarily domestic as well.

With the pipeline in place, the expansion of Canadian crude oil industry to a world market would bid up the domestic price of crude oil to meet the world price (narrowing the gap between the domestic and the world price). This will be so as the result of a much higher demand from a worldwide refinery industry/oil market, particularly with access to the ones in Asia and West coast US.  Mr. McGowan mentioned that the Saudi Arabia (currently the main oil supplier to the Asian market) when facing the Canadian entering their Asian oil market could lower their oil price to keep their market share.  Thus, it would result in a reduced “Asian Premium”.  The “lowered” oil price in Asia market/world market would then still be higher than the current Canadian domestic price of crude oil because of the high demand. This would encourage Canadian crude oil export as long as it allows a higher margin of profit than selling the oil domestically.  The potential shrinking supply of crude oil domestically would cause the domestic oil price to rise.  In addition, the Canadian refineries’ bargaining power would be reduced as the Canadian crude oil industry is open to the world market which would probably be reflected on an increase of price of crude oil as well.

Filed under Environments and Sustainability
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