WHEAT
They are Stuck!
It’s been over a week since I placed the spread order on wheat. Spread order is used to reduce the loss, and risk. However, as shown on the chart above, that wasn’t the case. Since the end of last week, I have been losing in both long and short wheat contracts. This occurred because up until Wednesday (Oct.10th), the market price has been higher than W2Z, the SHORT contract, and lower than the LONG contract, W3H (see graph below).
My plan was to offset 2 contracts individually, unless the wheat future prices fluctuated drastic enough that the gain from one contract was large enough to cover the loss for the other.
Although it wasn’t nearly high enough to cover the loss from the SHORT contract, wheat futures price increased to above W3H (LONG)’s “price in” on Thursday (Oct. 11th). This was a result of USDA’s estimation on the reduction in both the U.S. and world wheat stocks. Since I didn’t think wheat future prices were going to fluctuate as much as soybean futures, I decided to offset the long contract while it’s making gains. However, there wasn’t enough W3H available for me to offset. According to Thursday’s closing price, the market price is still higher than W3H’s “price in”.
Due to the lowered export demand for wheat in the U.S., along with the expected storm coming on the weekend, the U.S. government forecasted for greater world supplies for wheat than initially expected. Unexpectedly, wheat future prices dropped severely on Friday. As listed above, W2Z’s price out was $856.75, I could’ve ended the contract if I placed a price limit on W2Z earlier during the day. However, since I failed to offset my long wheat contract yesterday, offsetting W2Z means increasing the risk of losing more from W3H, especially since the market’s closed for trade over the weekend. I ended my 5th trading week by leaving both wheat contracts in the market for another weekend.
SOYBEAN
Missing Opportunity for Potential Gain… AGAIN!?
| POSITION | SUBMIT DATE | TYPE | CONTRACT | QUANTITY | EXECUTED |
| SHORT | Oct 9th (Mon) | Market Spread | S2X | 1 | Yes |
| LONG | Oct 11th(Thurs) | Price Limit | S2X | 1 | Yes |
Potential Gain/Loss
| SOYBEAN | Monday | Tuesday | Wednesday | Thursday |
| Price In | 1554.00 | 1554.00 | 1554.00 | 1554.00 |
| Today’s Price | 1551.00 | 1550.00 | 1523.25 | – |
| Price Out | – | – | – | 1548.00 |
| Gain/Loss | $150 | $200 | $1537.50 | $299 |
As mentioned last week, I predicted soybean futures to stay relatively constant until the release of USDA’s report on Thursday (Oct. 11th). While the price did stay quite stable on Monday, and Tuesday, soybean futures dropped to monthly low, and price at closing was $1523.25 on Wednesday. While I had second thoughts about offsetting on Wednesday, I insisted on going with my initial prediction, and stayed in the market. However, soybean price started to rebound on Wednesday night, and continued to increase on Thursday.
Soybean future prices soared, because USDA reported that while soybean production has increased by 9% from September, it’s still 8% lower from last year. USDA forecasted that soybean domestic supplies would be tight next year, which caused the price to spike on Thursday. Another possible reason to soybean’s hasty price spike could be due to the weather. According to Brian Early, an Indiana agronomist, with more rain, soybeans receives less daylight, and as a result, it becomes more difficult to get the moisture out of the soybeans. However, USDA disagreed, claiming that the recent rainfall has lessened the severity of their soybean situation from the drought. On the other hand, when analyzed with technical analysis, it’s reasonable for soybean price to rebound after a drastic drop in price.
After soybean future prices increased by almost 40 cents per bushel, I set a price limit that is slightly lower than my S2X’s “price in”. My strategy was that if the price reached that price, I’ll offset the contract without much gain, but the loss would be zero. If the price continued to spike without dropping even slightly, I’ll leave the contract in the market, until soybean price drops again. Fortunately, the price fluctuated at some point during the day, and the system automatically offset the contract at $1548.00. I gained a total $299.00
However, soybean future price, once again, dropped drastically on Friday. Soybean futures price drop was a result of slowing demand for the U.S. supplies; the U.S. is the world’s biggest grower and exporter of soybeans. I clearly should have been more patience with the soybean price pattern.
If I offset the soybean before the market closed on Wednesday, or waited until Friday to offset, I could’ve had a gain of approximately $1500.00 or more. I should’ve had more faith in the price fluctuation cycles that I’ve observed for the past month, and expected price to rebound after such drastic drop in price on Wednesday; as opposed to solely depend on the USDA reports to effect the commodity price. Therefore, I lose by not gaining the potential $1537.50-$299.00 = $1238.50 that I could’ve earned by offsetting earlier.
After missing huge potential gains for 2 weeks straight, I realized that timing is really important when it comes to trading. It’s absolutely useless and pointless to predict the correct price pattern if I’m unable to predict the time or moment that price starts to fluctuate and flip the price pattern.
Reference
http://af.reuters.com/article/commoditiesNews/idAFC3E8J302C20121011
http://www.agriculture.com/markets/analysis/wheat/wheat-falls-on-dem-concerns_11-ar26879
http://futures.tradingcharts.com/intraday/ZS/B2
http://www.hoosieragtoday.com/index.php/2012/10/11/soybean-harvest-may-slow-as-rain-begins/
http://www.sacbee.com/2012/10/12/4906863/news-summary-wheat-falls-on-weekend.html
http://thegazette.com/2012/10/11/corn-soybean-prices-soar-on-usda-production-yield-report/