1. What I went right?

For this week, based on my last week’s analysis. I planed to use spread to earn more. In the short run, the corn price was decreasing, but in the future, the corn price would go up because of the shortage of stocks. Therefore I went a long position on July contract in 2015 and a short position on March contact in 2013. The result was really pleasing. It seemed like I made a good choice. Although I lost some money on July contract, 2015, it shows an increase trend now. Here are my account information:

Daily Price Change

2. The Road Ahead

About future stocks:

According to the news from Agrimoney.com, inventories in major exporters such as Canada, the European Union and the US are forecast to be a 3m tones drop to 96m tones. Just as IGC said, “inventories for the major exports will be even tighter and the smallest for 17 years.” The following shows more information about the stocks situation.

 About Production prospects:

For corn, the production prospect was cut to below the USDA figure. It is also estimate that “northern hemisphere production prospects have mostly worsened.”

For wheat, “lower yields in the European Union and Kazakhstan, as well as deteriorating crop prospects in Argentina and Australia, reduce the forecast for world production to 655m tones,” the IGC said. At the same time, China increases imports of wheat. Chinese wheat imports look set to trounce market expectations for 2012-13, putting extra upward pressure on world prices. In Ukraine, a ban on exports of the grain will be executed from Nov. 15^th.
For soybean, the IGC was optimistic to soybean production, raising their world production estimate by 8m tones to 264m tones. The weather for southern American crops plays a very key role in world soybean production.

Based on above analysis, I would go with long positions on corn and wheat, especially on 2014 or 2015 contract and a short position on soybean.

References:

http://www.agrimoney.com/news/surge-in-chinese-wheat-imports-to-set-a-trend–5139.html

http://www.agrimoney.com/news/top-exporters-grain-stocks-to-fall-to-17-year-low–5147.html

 3. Cool resources

http://www.dtnprogressivefarmer.com/dtnag/home

I got this cool resource from Sean, it is a website focusing on farmers.There are a lot cool information here such as news, market, livestocks, farm business and etc. Especially, this website include many farmers’  blogs .They blog from various perspectives such as market matters, technically speaking, ethanol blogs, production blogs, policy and so on. I think this is amazing.  These farmers or blogers have their own predication about the market from different viewpoint. I think this will be very helpful for us to get more information.

2. The Road Ahead

Before the next report releases on November 8th, I think the price change of crops will be hard to predict. Therefore the short-term downward trend may change very rapidly. The weather change would contribute to the supply analysis in the next year.

According to what Telvent DTN Inc. said in a report yesterday, showers forecast for the soybean- and corn-growing areas in Brazil this week will be mostly light and temperatures will remain above normal after dry weather depleted soil moisture, therefore the crop stress may return to Brazil.

Also in Argentina, the largest soybean shipper behind Brazil and the U.S., heavy rains this month may delay planting, and also affect corn and other winter crops.

According to the recent October report on cereal supply and demand brief, a decline in world cereal production in 2012 from the record in 2011. The decrease will result in a significant reduction in world inventories by the close of seasons in 2013 even with world demand sliding as a result of high prices.

So far, based on the above information, I would still hold a short position on the future contract in 2012 and long position on 2014 or 2015’s future contact. We will see what will happen. I will pay attention to the next report coming on November 8th. I think I will take advantage of the release date.

References:

http://www.fao.org/worldfoodsituation/wfs-home/csdb/en/

http://www.bloomberg.com/news/2012-10-24/soybeans-climb-on-concern-crop-stress-may-develop-in-brazil.html

For this week, I just found this useful website for sharing:

http://www.fao.org/worldfoodsituation/wfs-home/csdb/en/

This website is build by Food and Agriculture Organization of United Nations. The Cereal Supply and Demand Brief provides an up-to-date perspective of the world cereal market. The monthly brief is supplemented by a detailed assessment of cereal production as well as supply and demand conditions by country/region in the quarterly Crop Prospects and Food Situation.More in-depth analyses of world markets for cereals, as well as other major food commodities can be found here.

Paying attention to the Monthly release dates for 2012: 08 November, 06 December.

What I went right ?

Based on my last week’s analysis. The huge demand from the market would raise up the world price of crops. Therefore this week I chose to hold long positions on wheat, corn and ‘crazy crop’-soybeans before the coming of harvest time. It turned out to be a right decision, because I earned around 5000 dollars. Here is my account information:

Daily Price Change

What I did last week—Almost nothing

This week, I just did one thing-offseting all my trades and wait to see. When I found that After the release of USDA monthly report on Supply/Demand and Crop production and soybean got crazy, I realized that I was late and can not buy a short position on it. I had to wait again. However it was so tricky that when the next day I tried to bought a short position on corn after a strike, trades were close. Therefore, for this week ,I have nothing to show but a bigger loss after offsetting everything. Here is my Ending balance as of 10-12-2012,

Position Value: $0.00
Cash Available: $37773.79
Equity:         $37773.79
Realized Gains: $-2227.50

I need to figure out what I am going to trade for making up for this big loss.

The Road Ahead–Long Position

The central idea to take away from this month’s Supply/Demand and Crop Production reports is that demand is still relatively strong giving the higher prices over the last couple of months. Although because of USAD report, the soybeans turned to be a higher supply than expected and corn and wheat got short and fluctuate back, export demand for soybeans, feed and ethanol for corn, and feed for wheat. As we move though this marketing year, export demand for wheat has strong potential to pick up significantly as the short production internationally will become  more and more apparent. And also, South America is in the heart of planting what could be a record crop, so whether in the southern hemisphere will have to be monitored closely throughout our winter season.

Based on above analysis, I would buy a long position on soybeans on the month before the harvest season.

I think the I still cannot figure out how to collect useful information and make my own prediction. At the begining of this week, I checked the base change and found that wheat price started a positive change.Therefore I offset all my short positions on W2Z and W3H. Then I hope the trade will not be delayed and I can realize around $500 gains. I would like to go back to focus on original information  instead of news.

According to Wheat Outlook report from USDA, The world wheat production forecast for 2012/13 declined 4.1 million tons, driven by a major reduction for Russia. With reduced supplies, prospects for world wheat use are lower and ending stocks are projected slightly down. And also after collecting the data from Agrimoney.com, the growth rate of ending stocks for many important countries shows as following:

All over the world, the ending stocks of wheat declined. And based on the past experience, I am still looking forward to an increase in the future July and Agust contract.

References:

 1. http://www.indexmundi.com/commodities/?commodity=wheat&months=120

2. http://www.agrimoney.com/news/wheat-prices-to-top-$10-a-bushel-says-goldman–5048.html

3. http://usda01.library.cornell.edu/usda/current/WHS/WHS-09-14-2012.pdf

1. http://commodities.about.com/od/tradingstrategies/a/commodity_trade.htm

Here are some useful information on how to trade

Fundamental Anlysis—Supply and Demand

Supply–The supply of a commodity is the amount that is carried over from previous year of production and the amount that is being produced during the current year.There are many factors that can impact the supply of commodities like weather, amount of acres planted, production strikes, crop diseases and technology.

Demand–Demand for commodities is the amount that is consumed at a given price level.

There are numerous reports that are compiled by government sources – USDA, Department of Energy and the Futures Exchanges can be used as a source to carry out fundamental analysis.

2. http://www.uswheat.org/reports/harvest

U.S. Wheat Associates reports on the condition of America’s wheat crop every Friday through the harvest season (June – October). The reports includes updates for Hard Red Winter, Soft Red Winter, Hard Red Spring, White, and Durum.

3. http://www.spectrumcommodities.com/education/calendar/index.html

If you want to check the basic information on crops such as different crops harvest seasons on different regions, production and consumption, the largest exporters and importers and so on. Charts on this website represent production stages for different crops around the globe and you can check any month you want.

What went wrong for Third Round?

Last week, because of the Friday stock report, the price of wheat saw a quick strike. I have read that “under a range trading strategy, you would sell the market when it gets to the top of its range and buy the market when it gets to the bottom of its range”. I guessed that after a fast increase, the wheat price would welcome a downward trend in short term. However, the situation of short stock of wheat would rise up the future price especially before another harvest coming. Therefore I hold a short position on December contract and a long position on March contract. I just followed the news as well as price change on the website of GMEGroup. However, I ignored the most important thing, backing to fundamental analysis of commodities—the supply and demand of wheat. From above chart, we can see that wheat future price showed a downward trend, but with a little bit change. Therefore the base for W2Z and W3H are so low that there was not a large gain or loss on my account. Until, Oct.6^th, there was a relative big jump. I am still looking forward to a big increase in March price. Because the farmers expect a higher price due to recent short stocks, then I guess that after experiencing a harvest in Australia and South Asia, farmers would increased stocks to raise up the price. However, the price on September just saw a big jump. Therefore it is too hard to say that the price would go father in March. Also I made another mistake, I offset my long position on W3H from Saturday, however, the trading system delayed that proposal. I lost the good opportunity to lower my loss.