Big gamble …. Bigger loses in Wheat, Corn and Soybean!

The drought in mid-July in the United States raised speculators anticipation that there was going to be shortage of wheat in the market. Then the news of good weather for commodity harvest in the United States, the eased Syria tension reduced stressed on crude oil and the FED reserve report filtered in. I think I learnt much from friends’ blogs that these were some of the factors that suppressed commodity prices on futures trading last week. Thanks guys!

What about this week?  Most of it seems to emanate from observations about major weather conditions and seemingly policy changes in China. China is not just China; China is one of leading importers of these commodities except soy.

       Anticipating China is going to need more wheat and Corn? Yes!

There’s almost a U-turn in China’s decision on food sufficiency in which it wish to be self-sufficient in major staples such as wheat and corn. However, with the large crop failure it observed this year, there is an anticipation that the Chinese economy could depend largely on imports. According to the financial times, Beijing has officially admitted that it anticipates importing about 20million tonnes of wheat next year. Besides, China has already allowed imports of corn from Argentina for the first time this year and Ukraine is expected to ship its first ever consignment to China this year as well. Reasons are that China couldn’t depend solely on United States which has also suffered major droughts in 2012 for its import (http://www.ft.com/cms/s/0/4d738f8e-19f5-11e3-93e8-00144feab7de.html#axzz2g2NuqIwG). Also, there’s news of bad seeding weather for Wheat in Ukraine implying that one of the major producers would be affected next year. Speculators have therefore responded highly to this information.

      How did this influence my trading? Bigger buys!

First of all, I observed that the futures contract shored up significantly on CBOT for Wheat, Corn and Soybean on average, though soybean later declined. From Monday through to Thursday 4pm, there were accompanying massive increases in Agricultural Commodity investment funds: 0.7% for CORN, and 0.14% for WEAT while SOYB declined by 0.27%. So I anticipated that this was going to rise further at least before trading ends on Friday 2.00.am. I accordingly bought 10 contracts each of December for Wheat and Corn and short Soybean.   Unfortunately I made losses and my portfolio value stands at $$99,525.41 with a negative return on trade of about 0.47% as shown in the Table below.

The price of soybeans and soybean oil has been declining on the CBOT. In the last three days, it declined by 9.0 points. This is because there is an expectation that soybean supply will increase soon as a result of ongoing harvesting in the United States and therefore put a downward pressure on prices. While this increase aggression among producers and speculators to offload any stocks that have been previously acquired before prices run-down, there is no similar amount of aggression among consumers and soybean processors to buy because they still expect prices to fall further than the current level. In view of this I thought the prices would continually decline for a while. So I short 5 contracts of soybean and earned an interest of $32.0.

With this unexpected increase in corn yield in the United States, corn prices are expected to decline in the present and future. However, if lots of the harvested corn is consumed in the bio-fuels, then it would be the case that prices might rise in the months to come.