Cool Source of Information

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U.S. Agriculture Department said weekly export inspections of wheat were 24.485 million bushels, near the high end of forecasts for 22 million to 25 million.
http://af.reuters.com/article/commoditiesNews/idAFC3E8J301O20121001

The government reported on Friday, reigniting a rally in grain prices on fears that strong demand and drought-decimated crops will keep markets tight.
http://af.reuters.com/article/commoditiesNews/idAFL1E8KSBZ820120928

Wheat Prices Seem Strongest of the Grains

http://www.insidefutures.com/article/796199/Wheat%20Prices%20Seem%20Strongest%20of%20the%20Grains.html

 

What went wrong in the 2nd week

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During the 2nd week, since the extreme drought all over the world I still put eyes on the demand shock. Based on the information form the REUTERS, Russian would restrict there wheat export if the domestic price remain high.

“Russian ministers dismissed the idea of export curbs, while the market already anticipates that Russian wheat exports will dwindle in coming months because a severe drought has hit the harvest there.”
However, Western European wheat is expected to fulfill the export demand. Some good news also from India that the Indian rupee hit a new four-month high on Monday, coming close to breaching 53 to the dollar. The wheat future I focused on was W3H.  As the wheat future mkt was really unstable in the last few months, I decided to leave the mkt for now.

Some other news form India, according to Mankharia, a trader based in Bikaner, Rajasthan, “Heavy rains in September in northern India have raised the prospects of more sowing for the winter season and conditions are favourable for a bumper wheat crop for the third straight year”. Therefore, there must be an expectation of softening future prices, and I short on C2Z.

However, because of the supply shock, the expectation form the Russian restriction dominate all other factors, both C2Z and W3H price drop in Thursday but raised in Friday again. I should have leaved the mkt after Thursday’s gain but I missed the point.

The Road Ahead

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The Road Ahead

Since I have already got a great lost in last two weeks, I reviewed the prices for all contracts I have committed. I find out that I lost not because of my predictions were totally wrong, it is because I did not stay in the market for long enough time so that my prediction become true. For instance, I short on S3H with three contracts price in 1612.00, Sep. 18th , today’s S3H’s price is 1529.5.  I would have earned more than 100 dollar per bu if I stayed in the mkt constantly. However, I only gained 3976 dollars for these S3H contracts because I jump in and out. This week, I decided to hold what I have for a longer period of time and try not be panicked by little lost within few days.

The road ahead for the 1st week

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In the nest week I suppose that I should change my strategy. I will long on wheat and corn.

This is the list of the top 10 countries of wheat production. The wheat production in Canada and the US increased by 6.88% and 13.45%. The considerable reduction did not happen in the North America, but in the Europe.

For corn, on the other hand, there is also a supply shock. Three out of top five corn production countries are suffering from the reduction, and the reduction in the US, the EU and Brazil can hardly be canceled by the increase in production of China and Argentina.

From the following diagram, business cycle for corn and wheat prices is not very obvious. However, we can still point out that generally, corn and wheat prices stay at relatively high level in spring but low level in full. During full 2012, because of the reduction, prices are still high and it is reasonable to predict that corn and wheat would have a higher price level till next spring.

Why the Gateway pipeline will raise the price of crude oil??

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Question 1
Since the crude oil resources in Canada heavily relies on the US refineries and the US economy is still in a downturn, Alberta and federal government have strong willingness to export crude oil to Asian market through the creation of the Gateway pipeline. Thus, the demand of the crude oil would be increased, since the Asia refineries would be able to import crude oil with a relative low transportation cost from Canada. The total oversea demand of crude oil increased, however, on the other hand Canadian firms will not increase their capacities in the foreseeable future. Therefore, the crude oil price will be raised up to a higher level for the creation of the Gateway pipeline. Secondly, to build a pipeline between provinces, a large fixed cost must be required. In order to recover the fixed cost, Canadian firms need more market power and charge a higher price.