Month: September 2012

Monday (Sept 24^th)

POSITION	SUBMIT   DATE	TYPE	CONTRACT	QUANTITY	EXECUTED
SHORT	Sept 21st	Market	W2Z	1	Yes
SHORT	Sept 21st	Price Limit	W2Z	1	No – Deferred

As mentioned in last week’s blog, I failed to offset both of my W2Z wheat before closing on Friday, and I had 3 contracts of wheat (2 December wheat and 1 March Wheat) going LONG left in the market. The transaction for going SHORT on one of the December wheat was not processed until today. Unfortunately, wheat future started to drop drastically on Saturday night, and continued on Monday, despite the fact that all the news released favored upward price trend for wheat future. Russia, a Major wheat export country, was still considering export control, and many importing countries were increasing their import due to supply depletion as a result of the drought; I was agitated at the price drop.  In addition, Google news did not report any major reasons as to why the price of wheat fell as of Monday night.

The only reasonable explanation for the price drop in wheat that I could think of was a hasty increase in numbers of scalpers in the wheat market. After predicting the wheat price increase on Friday morning, many traders bought large amount of wheat while the price still remained low, and immediately went short after the price increased later during the day. With scalpers selling wheat at the same time, wheat supply increased abruptly, and caused the price of wheat to drop.

From the news and information gathered, I was still convinced that wheat price would increase due to an increase in world demand and decrease in supply from exporting countries. Hence, I decided to keep my LONG position for both W2Z (Dec wheat) and W3H (March wheat) for another day to see where the market was heading.

Wheat (W2Z) Price In: $897.25
Wheat (W2Z) Price Out: $889.25
Total Gain/Loss: – $401.00

Wednesday (Sept 26^th)

POSITION	SUBMIT   DATE	TYPE	CONTRACT	QUANTITY	EXECUTED
SHORT	Sept 25st	Price Limit	W3H	1	No – Deferred
SHORT	Sept 25st	Price Limit	W2Z	1	No – Deferred

I set a price limit order for December and March Wheat at a price that’s relatively close to my “price in” prices for both contracts. However, wheat price dropped disastrously for the entire day on Wednesday; both price limit orders were deferred.

Thursday (Sept 27^th)

POSITION	SUBMIT   DATE	TYPE	CONTRACT	QUANTITY	EXECUTED
SHORT	Sept 27th	Market	W2Z	1	Yes
SHORT	Sept 27th	Price Limit	W3H	1	No – Deferred

Price dropped drastically since Monday night. Wheat future fell to 2 ½ months low, and dropped for a 4^th straight day on Thursday. The price drop was partially due to technical selling and fund liquation; as well as the rainfall in the Southern U.S. plain winter wheat belt. However, countries were still increasing their demand for wheat import, and experts believed that wheat price is likely to increase. While I was fully convinced that the wheat price could increase anytime, I wasn’t sure how much the price would decrease before it bounces up again. On top of that, since I had 2 contracts in LONG position, one price drop means I lose double the amount. At this point, I wanted to reduce my risk of losing more money, by offsetting one of the contracts, and keeping the other one in SHORT position, so that I don’t lose double the amount even if the price falls even further. Hence, I went short for W2Z with a market order, and kept my price limit order for W3H, which I knew was never going to reach since I set the price at $909.10. Even if the price reached $909.10 for March contract, I wouldn’t lose money.

Wheat (W2Z) Price In: $897.25
Wheat (W2Z) Price Out: $855.00
Total Gain/Loss: – $ 2113.50 

Potential Loss

Wheat (W3H) Price In: $908.00
Wheat (W3H) Closing Price: $868.25
Total Gain/Loss: – $1987.50

Friday (Sept 28^th) 

POSITION	SUBMIT   DATE	TYPE	CONTRACT	QUANTITY	EXECUTED
SHORT	Sept 28th	Price Limit	W3H	1	Yes

Wheat price skyrocketed on Friday morning. December wheat increased by 44.0 cents, and March wheat rose by approximately 41.0 cents since Thursday.

The highest price for W2Z wheat was $907.00, which is higher than my price in for W2Z ($897.25). I should’ve waited for one more day to offset the W2Z wheat that I impatiently sold yesterday. In which case, I could’ve earned a maximum of (907-897.25)*5000 = $ 487.50 ; even if I didn’t end up attaining that much gain, I definitely wouldn’t have lost over $2000.  Nevertheless, I don’t regret making that decision, because wheat future could’ve fell even lower on Friday and I could’ve lost even more money if I didn’t offset one contract to reduce risk.

On the bright side, W3H future reached as high as $916.60 today. As soon as I saw the price raised above $900, I submitted a price limit transaction of $909.10 for going SHORT. As a result, not only did I gain an additional $211.50, I also gained by not losing the potential loss of $1987.50 for W3H from Thursday.

Wheat (W3H) Price In: $908.00
Wheat (W3H) Price Out: $912.25
Total Gain/Loss: + $211.50 

 
In general, for the contract that I lost over $2000 on, I bought it at the highest peak price, and went short at its lowest peak price.

What I learned from the past two weeks of trading was that crop prices usually fluctuate in cycles. There is an upper and lower limit to their increasing and decreasing in price. If there has been tremendous drop in crop price, the likelihood of the price bouncing up is very high. Therefore, it’s always better to be more patient when waiting for the prices to U-turn.

Total for Week 3:

loss from W2Z + loss from W2Z + gain from W3H
– $401.00 – $2113.50 + $211.50 = – $2303.00

 

Reference

http://www.forexpros.com/commodities/us-wheat

http://in.reuters.com/article/2012/09/27/markets-grains-idINL4E8KR2TG20120927

 

Wheat, soybean and corn prices were pressured last week as a result of harvesting. The release of the USDA report on Friday, September 28^th, 2012 caused prices to spike on the market, and crop prices to rebound.

Wheat

According to the latest USDA report released on Friday, September 28^th, 2012, wheat stocks went down by 2% from September 2011. The decline was not as drastic as many experts may have expected. Nevertheless, many countries are still running short in wheat supplies. Australia wheat production has estimated to be decreasing weekly. The US corn market has also been devastated by the drought, and the U.S. wheat market plays a key role in determining the world price for wheat. The U.S. government reported on Friday that wheat stockpile shrank more than expected this summer. On the other hand, Russia, one of the major wheat exporters, has raised the price of wheat instead of controlling their export. Officials still believe that Russia will restrict its wheat export, and reduce their export capacity by 5-8 million tons. This could lead to an increase in wheat sales in Europe, who also appears to have a tight wheat stock. Traders reported on Thursday that Europe has been exporting to Iran, Morocco, Algeria, and Egypt, etc. If Europe’s stock runs short, importing countries would have no choice but to purchase from the U.S., whose wheat price is relatively expensive. In addition, even though wheat stock only declined by 2%, corn stocks went down by 12%. Many consumers have been using wheat as substitutes for corn, which has led wheat consumption to increase by 27% for June – August compared to one year ago.

With the information listed above, I foresee an increase in wheat futures. However, since wheat futures skyrocketed and possibly reached its limit up on Friday, it can be expected that wheat price is going to decrease somewhat before it increases again.

Corn

According to the latest USDA report released on Friday, September 28^th, 2012, corn stocks went down by 12% from September 2011. The release of the report rose corn future by 40 cents.

The U.S. Department of Agriculture reported corn stocks were below 1billion bushels for the first time in 8 years. Depressed global corn supplies are caused by the U.S. drought and poor harvest earlier this year in South America. About ½ of this year’s crop is in poor to very poor conditions. In addition, part of the corn supplies has been in storage before September due to early harvesting. Consumers are turning to wheat for substitute.

Crops prices fluctuate in cycles. While 40 cents jump in corn future from Friday looked like limit up was reached, corn price is not nearly as high compared to the end of August. Therefore, it can be anticipated that corn price is going to increase tremendously in the next few weeks.

Soybean

USDA reported soybean stocks went down by 21% from September 2011 on Friday, September 28, 2012. Given the report from USDA, and compared to the soybean price from last month, I anticipate the soybean price to bounce up further.

In the meanwhile, the Indonesian government is setting a base buying price (HPP) for soybeans to protect the farmers and producers, and to stabilize the price. The U.S. is Indonesia’s biggest importing channel for soybean. However, the drought in theUShas increased imported soybean price on the local market by 60%. The government is currently trying to increase domestic production to break their independence from theU.S.for soybean. This is possibly going to affect soybean future in the world market.

 

Reference

http://www.bloomberg.com/news/2012-09-28/u-s-corn-stockpile-unexpectedly-drops-sparks-price-rebound-1-.html

http://www.brecorder.com/markets/commodities/europe/82472.html

http://commodities.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=commodities&cdn=money&tm=20&gps=187_43_1366_673&f=00&tt=2&bt=1&bts=1&zu=http%3A//usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do%3FdocumentID%3D1079

http://www.forexpros.com/commodities/us-corn

http://www.forexpros.com/commodities/us-corn-streaming-chart

http://www.forexpros.com/commodities/us-soybeans

http://fw.farmonline.com.au/news/nationalrural/grains-and-cropping/wheat/wheat-running-its-own-race/2625908.aspx

http://fw.farmonline.com.au/news/state/grains-and-cropping/wheat/wheat-price-upside-still-in-play/2625867.aspx

http://www.reuters.com/article/2012/09/28/usa-crops-idUSL1E8KSBZ820120928

http://seattletimes.com/html/businesstechnology/2019291145_apuscommoditiesreview.html

http://www.thejakartapost.com/news/2012/09/29/government-set-base-prices-soybeans.html

 

Below are the websites I’ve been using extensively for the past 2 weeks:

• Reuters (http://in.reuters.com/) has updated news every day.
• Forexpros (http://www.forexpros.com/commodities/us-wheat) is a great website to go to for charts and historical data.

Also, U.S. Wheat Associates – The World’s Most Reliable Choice (http://www.uswheat.org/newsEvents/wheatLetter) is quite resourceful. They have wheat letters released two to three times a month. The latest one was released on September 27^th, 2012. In the letter, they discussed issues such as how crop shifts in China may affect world wheat market, market meddling, and how Australian drought adds anxiety to wheat market. It also discussed how south Asia team learns more about managing supply chain challenges at NCI, and wheat industry news, etc. Charts were included in the wheat letters to further demonstrate what’s being explained.
Below is the link to September 27^th’s wheat letter:
http://www.uswheat.org/newsEvents/wheatLetter/doc/4CCAAA621965468C85257A86006D2FDA?OpenDocument
Along with the letter, US Wheat Associates also provided the USD Harvest Report (crops’ quality information): http://www.uswheat.org/reports/harvest/archive

In addition, I found the references to be a good section for discovering new links and good information. Many articles’ reference links often led me to interesting websites that are relevant to the topics that I was searching for.

Monday (Sept 17^th)

POSITION	SUBMIT DATE	SUBMIT TIME	TYPE	CONTRACT	QUANTITY	EXECUTED
LONG	Sept 15th	1:00 am	Market	C2Z	1	Yes

What went right? I went SHORT on corn last Friday, and offset to LONG on Monday. Part of the corns was ready for harvesting, which led to the decrease in price over the weekend last week. The corn conditions were improving as harvest processed. USDA estimated that 24% of the corns were in good or excellent condition, though that’s still 27% lower compared to last year. Furthermore, the drought depleted the crop supplies; I wasn’t certain how low the price of corn would decrease to until increasing again. It seemed that the decrease caused by harvesting was temporary, whereas the impact of the drought was more drastic; thus the price of corn was going to increase again rapidly. Fortunately, my prediction was correct. On Sunday night, December 2012 Corn has decreased by 7.2 and by Monday morning, it lowered further, down to – 31.2 compared to the previous day. This drop in corn future was followed by a quick rebound in price on Monday afternoon; price increased to +2.4 and fluctuated to +0.4 afterwards. I successfully managed to offset before corn price went up again.

Corn (C2Z) Price In: $787.75
Corn (C2Z) Price Out: $756.0
Total Gain/Loss: + $1336.50

 

Wednesday (Sept 19^th)

POSITION	SUBMIT DATE	SUBMIT TIME	TYPE	CONTRACT	QUANTITY	EXECUTED
LONG	Sept 19th	10:00am	Market	S3F	1	Yes
SHORT	Sept 19th	11:21pm	Market	S3F	1	Yes

What went wrong? Since the biggest annual drop in price on Monday, soybean price has been fluctuating rapidly. This is resulted from the impact of drought, slower harvest progress, but better than expected yield, as well as the occasional showers. I didn’t bid on Tuesday, because I couldn’t quite pinpoint which direction the price will shift to. On Wednesday morning, news reported that soybean price was rebounding. Therefore, I took initiative and went LONG on January 2013’s soybean (S3F) with the price of $1654.4 (+14.4) at 10am.The next hour, soybean price increased expeditiously to around $1665 (+23.2). Attributable to the recent fluctuation in soybean price, I was convinced that rapid increase in price would only be followed by a sudden drop. To prevent getting stuck in the LONG position while the price is low, I decided to offset at 11:21pm. I was in the market for less than 2 hours. However, soybean price amplified even further (+27.0) and reached its peak just before the market was closed. Though I was correct about the drop in price after a rapid increase, as soybean future did hastily drop from +27.0 to -2.0 in the afternoon, I was too urgent at offsetting S3F. I should’ve waited longer to see where the price was going, and could’ve earned more profit.

Soybean (S3F) Price In: $1663.00
Soybean (S3F) Price Out: $1672.00
Total Gain/Loss: + $449.00

Friday (Sept 21^st)

POSITION	SUBMIT DATE	SUBMIT TIME	TYPE	CONTRACT	QUANTITY	EXECUTED
LONG	Sept 21th	9:41am	Market	W2Z	1	Yes
LONG	Sept 21th	9:51am	Market	W3H	1	Yes
LONG	Sept 21th	12:26pm	Market	W2Z	1	Yes

In a way, nothing went as planned in terms of trading on Friday.

On Friday morning, news reported that Russia is considering taking actions on the reduced stocks, and planned on export control. Meanwhile, wheat importing countries, Japan and Morocco, are increasing their import for wheat (*see “the road ahead”). I predicted that with an increase in demand and decrease in supply, wheat price will increase, and bought a share of December 2012 wheat and March 2013 wheat each. At that time, the price for December wheat was $892.2 (+12.6), and the March wheat price was $904.4 (+13.0). As anticipated, price of wheat increased from $892.2 (+12.6) to $896.4 (+17.0) from 9:40am to 11:00am, and peaked at $897.6 (+18.2) at 11:30am. After, prices started to fluctuate between $892.4 (+13.0) and $895.4 (+16.0). At 1:30pm, I decided to go short and offset the 2 shares of December wheat, and leave the March wheat in the market over the weekend because I believed that wheat price is going to increase even after the weekend.

Unfortunately, that didn’t happen. None of the transactions got processed until the end of the day. My price in for both shares of December wheat (W2Z) was $897.25, which is the same as Friday’s closing price for W2Z. As well, March wheat (W3H)’s price in was $908.00, which is also the same as W3H’s closing price. The 2 transactions I sent in for going short never went through and were deferred.

I currently have 2 stocks of December wheat and 1 stocks of March wheat in Long position, and I am going to offset at least 2 of them on Monday.

If the transactions were processed at the time that I sent in the bids, my price in for December’s wheat would have been $892.2. If that was the case, I should’ve offset them when the priced rose to $897.0, rather than keeping them in for too long. This is because even when pattern shows increasing in price, price fluctuates frequently, and it’s highly unlikely for price to increase throughout a long period.

***

In general, I find myself relying on the CME data too much. The statistics is undoubtedly very useful in terms of keeping track of prices, and offsetting before I lose too much profit. Nevertheless, paying too close attention to the numbers means less time to analyze other factors. While I do find up-to-date news very useful in terms of deciding price patterns, different information gives different signals and I often find myself confused when prices fluctuate too much.

 

Reference

http://www.brecorder.com/markets/commodities/asia/80406-cbot-soybeans-to-rebound-to-1682-.html

 

The price of wheat, corn and soybean are expected to increase for the next while as a result of the worst drought in the U.S. Midwest since 1956. This drought is affecting not only the land and crops in the United States, but other nations around the world as well. For instance, supplies are tightening in Russia, the world’s 4^th largest exporter, and crops are threatened in Australia, the world’s second largest exporter. That said, however, other factors such as climate change, and crops’ yielding level, could also fluctuate and change the crop prices.

Wheat

Wheat price is anticipated to increase next week due to an increase in the world demand and decrease in supply. Russia, as one of the world’s biggest wheat exporters, is possibly controlling their export due to the lack of stocks. If the domestic price continues increasing, Russia is likely to curb grain export to protect domestic consumers. At the same time, world’s largest corn importer,Japan, plans to import 1.21 million tons of wheat for animal feed. This number is 58% higher than their estimation in March, indicating that the supply of corn is tightening, which leads to an increase in demand for wheat. Also,Moroccoestimates a 17% import on soft wheat from October to December. Adverse weather depletedMorocco’s soft wheat harvest to 2.74 million tons, while their domestic demand was 7.1 million last year. Morocco is looking at an additional 4.3 million tons of soft wheat import.

By increasing the demand from the importing countries, and decreasing in supply from the major exporters, it led to an increase in wheat price.

Soybean

Soybean futures had its biggest percentage drop in a year, and reached its annual low price on Monday, September 17th. CBOT November soybeans fell 70 cents per bushel. This was resulted from better-than-expected harvest yields in theMidwestfarm belt. Due to the drastic drop in price, major fluctuations can be observed in soybean price, before it stabilized again. Hence, soybean future could be hard to predict for the next week.

Corn

Like soybean, the price for corn is likely to fluctuate a bit. The U.S. Department of Agriculture claims that half of the nation’s corn crops are in poor or very poor conditions. However, corn future has been decreasing at the beginning of last week since part of the corn harvest was completed. As of this weekend, about 60% of the corns were finished for harvesting, and the corn seeds were doing better than expected.  Occasional showers were also boosting crops. Nevertheless, the drought has still caused the corn supplies to be constrained. Farmers in theUShave cut feed corn consumptions by 8% to 4.4 billion bushels. Corn users, such asJapan, have been substituting wheat for corn; this could also mean the depressing in price for corn.

In the case of corn, different factors point to different directions. Corn price could either go down or up next week, though it is not likely that it is going to have major increase or decrease in price.

 

Reference:

http://www.businessweek.com/ap/2012-09-20/rainfall-easing-drought-in-certain-corn-states

http://www.dailytimes.com.pk/default.asp?page=2012%5C09%5C22%5Cstory_22-9-2012_pg5_10

http://www.ft.com/cms/s/0/e04706c0-fca4-11e1-9dd2-00144feabdc0.html#axzz27EbDjNPd

http://online.wsj.com/article/SB10000872396390443995604578002130070385440.html?mod=googlenews_wsj

http://in.reuters.com/article/2012/09/17/markets-grains-idINL3E8KH41Z20120917

http://www.reuters.com/article/2012/09/20/wheat-morocco-idUSL5E8KKOK020120920

http://www.reuters.com/article/2012/09/21/japan-wheat-feed-idUSL4E8KL2DC20120921

 

First and foremost, the CME group website is my all time go-to website. I use it excessively (perhaps too much), and it always provides the most up to date prices of the crops, with a lag of 10 minutes. I often use it to record price charts to figure out the current price pattern and fluctuation cycles. It also provides different charts, varying from minutely to monthly, which can also be used for analyzing data to predict future prices.

Wheat:
http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/wheat.html
Corn:
http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/corn.html
Soybean:
http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean.html

 

The United States Department of Agriculture (USDA) website also provides rather useful information and data. One of the articles I came across from USDA twitter was “U.S Drought 2012: Farm and Food Impacts”(http://ers.usda.gov/newsroom/us-drought-2012-farm-and-food-impacts.aspx). It’s a particularly interesting article that goes into detail on how the drought has affected food prices and consumers, farms, crops, and livestock. Statistical data and bar charts are also provided. I’ve attached examples below.

Source: 2011, ARM, US Drought Monitor (Aug 14, 2012 drought status).
This diagram shows the drought severity distribution for major crops, and the numbers are in value term.

 

(Source:http://blogs.usda.gov/2012/08/14/agricultural-weather-and-drought-update-81412/ )
The diagram above indicates the damage that the drought had on soybean in certain parts of the U.S. This year’s drought is affecting over 1/3 of the county.

 

Wheat Yearbook Tables provide tables and statistical information for US Acreage, production, yield and farm price, world production, supply and disappearance, and USsupply and disappearance. As well as government and private stocks, and domestic and international prices. Above is a screen cap for wheat supply and disappearance in the US. It is updated on Sept 21^st, 2012. (http://ers.usda.gov/data-products/wheat-data.aspx)

 

The website also provides detailed stocks information, which can be used to analyze supply quantities, which affects the commodity’s price pattern greatly. Provided above is a screenshot of the table. For more information, please visit the USDA Oil Crops Yearbook page (http://ers.usda.gov/data-products/oil-crops-yearbook.aspx).

 

Similar to soybean and wheat, USDA has a yearbook table for corn.(http://ers.usda.gov/data-products/feed-grains-database/feed-grains-yearbook-tables.aspx)

 

I realize that it can be quite difficult and time consuming for beginners to evaluate and go through all these information. Nevertheless, these statistical numbers can come in handy for careful analytic works.