Month: September 2012

The most dramatic new pieces of information I discovered this week were the USDA agricultural reports, which as we saw on Friday can have an incredibly dramatic effect on commodity prices. The analysis which we conducted in our assignment on production reports was quite timely. It was interesting to see how the release of this new information can cause price shocks, either in anticipation or response to the news. Or alternatively the news can have almost no effect on the price. It all appears to be based on expectations, and when expectations either aren’t met or are exceeded shocks occur.

The other new news site I’ve started following is the Soybean and Corn Advisor (http://www.soybeansandcorn.com/News). The site has some interesting articles on production in South America. One in particular had to do with the chances of a large fungal infection of soybeans within Mato Grosso, Brasil. A very important issue I’ve noticed around trading based on fundamentals is giving weight to information. There are so many news stories and indicators that are pulling prices up, down and sideways that it is tough to know which metric will win out over the others. This weighing issues is one that I’m sure is only conquered through extensive research and experience.

For the week ahead I intend on investigating charting software and tools commonly used for price analysis and trading. While reading a blog on trading I was introduced to a website esignallearning.com. The site appears to offer free instructional videos on trading strategy. Other trading software that has been brought to my attention are Bloomberg Professional and ProRealTime. These systems all very in cost and features but I feel it will be quite beneficial to understand their basic usage of.

As for trading, I hope to get out of my long positions on soy with minimal losses. I will be watching corn quite closely but I expect a fair bit of volatility following Fridays limit trading. In the long run I expect that the price will slump back to the mid to low 700’s by December. The main trading strategy I plan on investigating this week is spreading. As I have yet to look at any active contract spreads I’m not sure which commodities I’ll be trading but after the weeks assignment I feel I understand the potential strategies enough to dive right in.

I learnt a very valuable lesson this week. When day trading, if you’re holding a position you need to always be paying attention to the price. On Tuesday I took 2 long positions on Soybeans, attempting to ride a very short term trend. On those contracts I was up roughly $200 dollars on the day. I should have sold then. When the markets opened Monday I had already experienced significant losses and I didn’t know what to do. In the end I held the positions and when corn rallied on Friday going limit up, soybeans were dragged along for the ride and much of the week’s soybean losses were quickly erased.  My open short on corn was another issue though. Over the last 2 weeks I’ve made nearly $1500 on one corn contract. On Friday all of that was wiped out and turned into over $500 in losses. However I still believe that in the long run the short on corn is the right move so I took the opportunity of what I’m hoping is a temporarily exaggerated price inflation to short another 2 corn contracts. I suppose we’ll see over the next couple months whether that was the right move or not.

This week my decision to trade corn futures was based on a trend in the data. In all likelihood next week’s trades will be mostly based on raw price data as well, but that’s not to say I’ve had my head in the sand. Bryce Knorr from Farm Futures publishes a comment or two daily on corn, wheat and soybean markets. These articles have been very interesting to follow as I actively watch the price of corn rise and fall. He indicates the vast number of metrics that influence the price; everything from weather and politics in Europe to water levels and waiting times at locks in the United States to policies and economics in Asia to weather in Australia. He seems to capture any news that might cause a blip in the market prices. During the next week I will attempt to follow in more detail some of these specific issues, particularly any which appear to have caused price shocks previously. I will also begin taking advantage of the news and research identified by my classmates in this week’s blog postings.

The coming week will be crucial in deciding whether or not to maintain my short on December corn. If early in the week shows steady rise that may be reason enough for me to jump ship. However if the week opens down it will reinforce my decision to stick with it. Aside from corn I have kept my eye on wheat and soybeans. The decision on corn was made based on a long term trend, this week I plan to take advantage of some short term volatility. Soybeans have bounced around by 20 to 30 points most days during the last week. In the coming week I will watch how the price floats up and down for soybean futures over the first couple days then try and take advantage of minor fluctuations by taking a position for a much briefer period with a greater number of contracts. This will again be an application of technical analysis for which I will attempt to utilize some of CME’s “study” functions or failing that attempt to generate my own projections using ARIMA modeling methods.

For my inaugural trade in agricultural commodities I took on the role of a technical trader. Based on the steady decline in corn futures since the end of august I predicted that this trend would continue and took a short position on December corn, buying in on Tuesday at 745’4. The most recent price Sunday evening was 743’2 which would net me a slight profit, however Tradesim maintains the Friday close of 748’2 which results in a loss for the week of -$137.50. This volatility characterized the week with some days closing at a net profit and others closing at a loss. When December corn closed lower Tuesday than my purchase price and I was up nearly $300 dollars on the day there was a rush of excitement that I’m sure traders must lust after. When it closed above my purchase price on Wednesday and my $300 profits turned into $700 losses a gut wrenching fear replaced the excitement.  So if I had to make a clear point on what went right or wrong it would be that I managed to push aside any emotional reaction to price and maintain the short position. I bet on a long term trend and I intend to stick it out (for now at least).

Enbridge’s proposed Northern Gateway Pipeline, if built will transport Alberta crude bitumen to Kitamat, BC where it will be shipped to Asian markets. The project has experienced an onslaught of public opposition yet many supporters can still be found, particularly in government and those involved in the oil industry. Recently however, it has come to light that at least some of the stated benefits to Canadians may be smoke and mirrors (http://www.cbc.ca/asithappens/episode/2012/09/04/the-tuesday-edition-45/). The problems lie with the so called “Asian premium.” This is the current phenomenon where Asian markets are paying a higher price for crude than the same product will fetch in North America. This arbitrage opportunity is exactly what Enbridge and some ministers are looking to exploit. Unfortunately there are a couple complexities which may negate the benefits to Canada. Currently much of Asia’s bitumen is supplied by Saudi Arabia which charges more to Asian customers due to their greater market power. If the Saudi’s are pressed with increased competition in Asia they will be forced to reduce their price (possibly eliminating the “Asian premium”) to maintain market share. The second major issue involves the domestic consequences to Canada. Although roughly 1100 permanent jobs will be created in Canada, it has been estimated that 8000 existing jobs will be eliminated from the oil industry in refining, construction and maintenance. This coupled with increasing oil prices in North America could result in a $750 million hit to Canada’s GDP.