Sean Pledger

There hasn’t been much good news to report from the last week. I’m still long in soybeans and wheat just waiting for a bounce that may or may not come. If wheat follows anything close to it trend over the last few months then I should still be alright, so long as it picks back up before December contracts expire. My fear is that soybeans have just gotten back on track for their downward trend. While analysts have been discussing this time of year to be a seasonal low for soy this has not been a typical year for agriculture prices. The drought lifted prices way above normal and as this year’s harvest nears completion those prices are settling back down in anticipation of harvests in other regions and future U.S. crops. There has been some upside action this morning which could be the start of the next upward trend, or that might just be wishful thinking.

Keep calm and carry on. As the trading game winds to an end and issues with tradesim have sunk several students, I’ll take this time to keep a close eye on my existing positions. I’ve found that whether I’m up or down I pay quite close attention to prices when I’ve got positions open. I would like to play these last ones out until the end (long soy at 1406 & 1457, long wheat at 851.5). It will either be a catastrophic lesson learned or maybe, just maybe my expectations will come to fruition.

If soy takes another downward leap I’ll offset my positions and cut my losses. Otherwise I’ll ride out these positions until they make me some money or the game ends. As for any new contracts, I’ll keep my eyes and ears open and if there’s any news that might cause a price shock I’ll try to take advantage.

I’ve taken a different approach this week. I haven’t paid much attention to the market news. Instead I’ve been focusing on the price movement and holding out for a technical bounce. After last week’s assignment I did watch a few additional videos on https://www.youtube.com/user/InformedTrades to try and pick up a bit more detail on technical analysis. The MACD tool is a more a complex moving average tool that helps identify when markets have a certain level of momentum (https://www.youtube.com/watch?v=k9nds4OpA2I&feature=relmfu). The site has numerous videos on a verity of different tools to help traders make decisions. Another video worth watching is Two Common Trading Mistakes (https://www.youtube.com/watch?v=6GBO7-7M5eQ&feature=relmfu). I may very well be guilty of both of these pitfalls on my soy positions, right down to the point about reinforcing the position. But as this is just a game and we’re here to learn I’ll sit tight and see what happens.

In preparation for Fridays USDA Supply and Demand estimates I place positions and price triggers on corn, wheat and soybeans. This time around the glitches in TradeSim seemed more random than usual. My corn transaction didn’t work at all. I placed my sell contracts and price limits to capture some quick gains (or abruptly limit losses) but as soon as my short positions were established they were offset at the same price netting me zero profits.

My Short positions on Wheat did something similarly bizarre but slightly more profitable. My intention was to sell at around 900 and buy at 848. Before the report release I placed my market order to sell at roughly 900 and had price limits to offset at 848 and 920. The market never hit 920 and only today (Tuesday) did it drop below 850, yet somehow my transaction ended up being sell at 916.5 and buy at 902. I made some money off this but I have no idea how the program came up with these transactions. Anyways, now that I feel wheat is near its short term low I’ve taken a long position.

Soybeans have cost me this week. I read several articles, all from people I’ve believed before, all indicating soy was going to rise. Although I’ve taken a hit on my 2 long positions I’m holding onto them and I’ve taken a couple more. The first 2 were long at 1457, the next ones were at 1410. If the analysts are correct in saying that the fundamentals point to a bull market and the technical aspects indicate now as a seasonal low for soy, if I hold these positions through to the end of term I should see some profits or at least limit some of my losses.

I’m anticipating a bounce in both soy and wheat. I expect soy will be a longer, slower bounce but I will possibly be offsetting my long wheat in the next few days. My long positions on January soy have in-prices of 1457 and somewhere around 1410 (we’ll see what tradesim decides). I don’t expect soy to make it back to 1457 this week but perhaps by the end of the semester I’ll have made back my losses from this weekend, plus turned a healthy profit on the 1410 long positions. As for wheat, I’ll be looking to see prices around 870 or 880 before I offset. That could be this week, it could be next but if the price keeps dropping much below 840 I will be very surprised.

My positions for last week’s Supply and Demand report came from a combination of articles and gut feelings. Wheat and Corn I was correct in predicting a price drop but based on the analysis of Farm Futures and The Progressive Farmer’s Technically Speaking, I was long on soy.

(http://www.dtnprogressivefarmer.com/dtnag/common/link.do;jsessionid=BF9B401D526E0F4549C6C74BF5C1E2FD.agfreejvm2?symbolicName=/ag/blogs/template1&blogHandle=agtechnical&blogEntryId=8a82c0bc3a5e6fae013aa2f39e4602d3&showCommentsOverride=false)

When making the call on soy I was hesitant but went for it anyways. Another lesson learnt, be sure before throwing thousands of dollars around on a hunch. The main source of my hesitation was due to our newfound knowledge of technical analysis thanks to Andrew’s presentation on Wednesday. While the news I was reading indicated a rise in prices, I thought I could see a downward triangle forming up to the report release. Turns out the technical analysis was correct. That being said I am now back to the mentality that the prices will turn up in the long term. If not a full swing into a bull market then at least a bounce that’ll allow me to cut some of my losses.

I don’t believe I picked up any new material this week but I will be watching Agweb.com closely to see if they release another pre-report summary of all the talk surrounding this week’s USDA WASDE report. I will also be spending a bit of time combing through the WASDE report page (http://www.usda.gov/oce/commodity/wasde/) to gain a bit more of an understanding of the general content and format of these reports. I would subscribe to the report release to get the numbers in real time, but as TradeSim delays it transactions there wouldn’t be much advantage to trying to react quickly. I would say it’s best to anticipate possible swings in either direction and pre-set price limits beforehand.

Research! In preparation for Fridays USDA report on World Supply and Demand Estimates I will be reading a fair number of blogs and articles. Leading up to Thursday night I will be placing some price limit orders to capture any volatility created by the report. I will likely be trading in corn and or soy. My strategy will be to place market orders in the direction I expect the price to move then put stop losses in place. I will also attempt to use additional limit orders to reverse my position should a dramatic enough jump take place, assuming that prices will overshoot their new equilibrium level and have to correct back. In applying this strategy for the last WASDE report there are 2 main lessons I learned. The first was that there can be considerable volatility prior to the report release so I will make sure to set my stop losses wide enough to not be triggered prior to significant price movement. The second lesson was one many of us in class have now expirienced, purchase delays in TradeSim. The key will be to set stop losses wide enough that they won’t be prematurely triggered but set price limit reversals narrow enough that they will be triggered well before the price reaches its high or low for the day, anticipating a delay in the transaction.

This last week has been pretty slow on the trading front. I came into the week holding short positions on both March and January soybeans. I had offset my corn shorts the previous Friday and was just waiting for soy prices to swing back down to what I believed to be the low side of their equilibrium range. Sunday night I offset my 4 January contracts at 1536 for a net gain of $1349 each. Then Monday morning I offset my 2 March contracts at 1509 for a net gain of $586.5 each. I believe this is was the first week since we began the trading game that I actually stuck to what I planned to do in last week’s blog. I predetermined the approximate level at which to offset by simply looking at the price trends and “running” a rough ARIMA (Auto-Regressive Integrated Moving Average) model in my head. That might sound more complex than it actually is. I basically looked at the recent trend and made an educated guess about how it would proceed in the near term. I used this same strategy to place a limit order on wheat. I expect that at some point in the next week or 2 December wheat prices will drop down below 850 so I placed a price limit order for 4 long contracts should the price hit 848. The price drop at the beginning of the week didn’t quite hit these levels but I still expect it to occur in the near future, and if not, in the mean time I have zero downside risk.

Despite my short term expectations that soy will swing back down I am aware that some of the general market sentiment is that soy will continue to rise from its current levels. Darin Newsom from DTN’s The Progressive Farmer writes a blog entitled “Technically Speaking” (http://www.dtnprogressivefarmer.com/dtnag/common/link.do?symbolicName=/ag/blogs/template1&blogHandle=agtechnical&blogEntryId=8a82c0bc3a5e6fae013aa2f39e4602d3&showCommentsOverride=false) where he currently predicts that we are at the start of a turnaround in the soy market. This analysis was based on the 5 year seasonal trends in the market which he shows quite convincingly begins a strong uptick around now, and it would appear that this year’s trend is following suit. The 2 factors in my mind that throw this analysis into question are that his graph only displays this year’s trend over the last couple months and that this year has been somewhat extraordinary with the drought which could indicate that what might happen in the near term may also be somewhat erratic. Doubts aside, Darin explains his reasoning quite logically and does present some solid evidence to the case that soy will again rise. Depending what happens this week maybe I’ll jump on the band wagon and go bullish on soy.