Sean Pledger

My main focus this week will be exiting the soy market. I’ve been betting mostly on longer term trends and now that corn and soy appear to have found equilibrium ranges (at least temporarily) I’ve decided now is the time to get out of any long term positions. I’m currently short 2 March contracts in at 1520.75 and 4 January contracts in at 1560. My expectations are that January could drop back down to the 1530 range, but if I can make 10 to 20 cents a bushel I’ll happily offset. Similarly with March contracts I expect we’ll see prices around 1500 again before too long at which point I’ll happily take a 20 cent gain.  Once I’m totally clear of all these markets I’ll look to play around with some price triggers and make some quicker money off of daily volatility, but I’ll cross that bridge when I come to it.

The past 2 weeks have been pretty slow on the trading front. Roughly a week and a half ago I offset my 2 wheat shorts. Going in at 890 and offsetting at 845 netted me a profit of nearly $5000. At the time it may have been wise to offset my corn and soy as well but I held all those shorts until yesterday when I offset the corn. After the USDA report release 3 weeks back I expected both corn and soy to continue back on their long term downward trends. Unfortunately it appeared that both have found new equilibrium ranges. I’ve been watching both bounce up and down for the last couple weeks until yesterday when it appeared Corn was at it’s low point (and soy at it’s high). Taking advantage of what appeared to be my best opportunity to get out of corn I offset my 6 December contracts at a price of 738.75. Of the 6 short contracts one was in at 745.5, two at 756.25, and three at 770.5. My net gain from these transactions came to a total of $7169. On top of these transactions I also picked up 4 additional shorts on January Soy with the expectation that those prices will continue to bounce around their equilibrium range set over the last couple weeks.

Time to hunker down! I will look to consolidate some of my gains this week. Playing around with day to day news and short term price trends has lost me a fair bit of money since the start of term, so now I think I’ll take a bit of a different tactic. I will likely offset my wheat. Relative to soy and corn the price movements in wheat are not substantial enough to keep my attention there. I’m not yet sure what I’ll do with soy but I think I’ll maintain my shorts on corn. I started with corn because of an apparent long term down trend so I think I’ll stick with that for now. As for any more trades, the one thing I can say is that I will be using price triggers for nearly everything. I’m also going to stick to the big news stories that “get all the traders talking.” Anticipating price shocks while using stop losses to limit potential losses seems to be the way to make money in this game.

In preparation for Thursdays report release I read through all the articles and blogs posted under AGWEB’s heading Power Hour: Pre-Report Analysis of Oct.11 Reports (http://www.agweb.com/article/power_hour_pre-report_analysis_of_oct._10_reports/). The analysis ranged from bullish to bearish on all 3 commodities. There seemed to be almost no consensus among analysts. The one thing I took away was the expected range in values and what effect those values would have on the market price. When I combined a bit of gut intuition and conservative price triggers the research happened to pay off. Having zero background in agriculture the “gut intuition” was mostly following the suggestions of the writers who were best able to explain their reasoning. I also put more weight into my old faithful, Farm Futures Reports and Brice Knorr’s analysis then some of my first time reads. Of the blogs I read I would point out that Kevin Van Trump (http://www.agweb.com/blog/Current_Marketing_Thoughts_140/) explained his reasoning very well and as a result, influenced my price expectations more than most other analysts.

On Thursday the USDA released their report on World Agriculture Supply and Demand and Crop Production. As we saw a month ago these reports can have a dramatic effect on agricultural commodity prices. So this week I tried to take advantage of potential price shocks. After reviewing a number of different articles and blogs on Wednesday I set a number of positions and price limit triggers. Going into the Thursday morning release my positions were as follows:

Short Dec Corn – in at 745.50 for 1 and 756.25 for 2

Long Mar Soy – in at 1573.00 for 2 (I lost a substantial amount of money on these)

Long Dec Wheat – in at 869.25 for 2

With triggers set to:

Long 6 corn at 745 then short again at 755.

Short 4 soy at 1475.

Short 2 wheat at 864 and 890 for 4.

The corn triggers were meant to reverse my 3 shorts into 3 longs at 745 to take advantage of a possible rise in prices, then at 755 lock in the higher short price. This didn’t exactly go as planned as there appeared to be a lag in execution. This happened to work out in my favour. By the time the shorts were executed the price was up to 770.50. As a result I’m currently holding 6 shorts on December corn with prices at 745.50 for 1, 756.25 for 2 and 770.50 for 3.

The soy triggers were intended to offset my longs and switch them to a short position when the price rose. Here again the delay in execution worked in my favour, not executing until a price of 1520.75 for March soybeans. Which, on Friday was sitting at 1492.00.

The wheat triggers were set as a stop loss and a price limit. Here events didn’t work out quite as planned. The stop loss trigger offset my long positions before the prices rose however the upper limit was still triggered giving me 2 shorts at 890. The Friday closing price was 856.75.

All in all it was a profitable 2 days, taking my equity balance from $33860 on Wednesday night to $45692 on Friday night.

Last week I planned to investigate charting software and continue researching technical trading, but as we’ll be covering more of that subject this week in class I will peruse that this week instead. On the 11^th the next USDA report will be released so I plan on watching the news feeds closely over the next few days to get a sense of what traders are expecting. This would be a situation where options might be appropriate. If the news coming out on Thursday causes any sort of price shocks like the one seen 2 weeks ago, holding a put and a call on one commodity might be a quick way to make some money. Instead I will try to offset some of my other positions prior to the news release in anticipation of a shock. If nothing dramatic happens then I’ll just pick up where I left off. However, if there is a price shock them I’ll likely take the opposite position once the price has settled for the day. This would be in anticipation of over eager traders running the price above or below the short term equilibrium. For instance, if wheat jumps dramatically up, after the price has slowed its rate or rise I’ll short it.

Agrimoney.com. I’ve read a few articles off this site now and they seem to offer some good company specific news.  I have yet to make a trade based solely on what has been discussed on the site but the site is well indexed to give news specific to a commodity. By flipping to the soybean section you’ll see articles not only on soy but also news regarding substitutes and companies directly involved in farming and processing. Similarly the corn section includes news on everything from military conflicts and how they impact regional food supply to tight market specifics discussing how a single company has adjusted their yield estimates. I would recommend this site for anyone who wants to pick up some more background knowledge on the markets but as there is only an article or 2 per day on each commodity so it probably shouldn’t be relied on as a sole point for gathering market data.

Currently I’m sitting short on corn and long on wheat and soybeans. I still haven’t managed to cut my losses on soy and it looks like I may have missed my best opportunities. Last week I took what I thought would be a short term money making position on wheat. I took a long position and set a market order to offset it when the price rose by 2 cents a bushel. That has yet to happen, but looking at wheat’s longer term price trend I’m still hopeful. The 3 short contracts I have on corn are all in the money right now. When the price spiked over a week ago I took the opportunity to take short 2 contracts at 756’2. Now looking at prices of 742 I’m feeling pretty good about that. I expected that Monday would see a small jump in the price of soybeans with the markets opening in China after the week off of trading but it seems I misjudged the effect that would have on demand. To this point I’m down by about $6500 from the start of September, but I’m still optimistic and learning valuable lessons every week.

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.