WEEK 2 (Part 1): The Went Right/Wrong

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