Since commodity future prices for wheat, corn and soybean all took a steep and hasty downhill dive on Friday. I foresee prices for all 3 commodities to rebound early next week.
Wheat
In general, wheat futures price stayed relatively stable until the release of the USDA report on Thursday. While USDA did report a lower than expected domestic and world wheat supplies, risen corn prices led wheat price to increase as well. Corn and wheat future prices often move together as they are substitutes, and both are used in animal feed. Wheat future price dropped tremendously on Friday, due to an increase in global wheat supplies from lowered export demand for the United States, and the predicted weather change a day earlier. I expect wheat prices to jump up next week, because wheat future fell below analysts’ expectations; it only makes sense for it to make a quick rebound before stabilizing at a relatively low price again.
Looking slightly ahead into the future, I foresee an increase in wheat futures price, because the USEDA report also forecasted a reduction in the world wheat supplies for 2012/13 by 6.2 million tons due to decreased production in the United Kingdom, Russia and Australia. All three countries are major wheat producers and exporters.
By looking at the analytical chart above, and ignoring all other factors, I see a clear upward trend in the wheat price pattern after Friday (Oct.12th)’s dramatic drop in wheat price. Therefore, despite the 2 wheat contracts (1 LONG, 1 SHORT) that I already have in the market, I am likely to place another LONG contract on wheat next week.
Corn
Corn price spiked last Thursday (Oct.11th), after USDA reported that corn harvest is the lowest since 2006. It continued to reflect the severe impact from this year’s drought. Nevertheless, like wheat, corn price was also pressured due to reduced export demand on Friday (Oct.12th). USDA reported that instead of exporting 300,000 to 425,000 tons like analysts expected, the net corn export sales were only 14,200 tons in the week through October 4th. Furthermore, 69% of the corns are already harvested this year, which is 28% ahead of what would be harvested in a typical year.
While reduction in exporting sales caused the corn futures to decrease, I still predict corn price to increase. For the global supplies of corn is still tight, and corn users such as livestock farmers, the ethanol industry, and other corn importing countries, are continuously demanding for the crops.
Soybean
U.S. government report reported an improvement on global soybean supplies, which greatly eased soybean future prices. Also, South America’s beneficial planting weather pushed down soybean price even further. Precipitations are seen in northern Brazil, and significant rainfalls are noted in the eastern Mato Grsso region. Both Brazil and Argentina, the world’s second and third largest soybean producers, are estimated to produce 81 million tons and 55 million tons of soybeans this year. Moreover, according to USDA’s weekly export sales report on Friday, soybean exports have reached lowest in two months; investment funds reported that 10,000 soybean contracts were sold as traders respond to the USDA report. World soybean supplies have increased as a result of that. President of grain trader Hammersmith Marketing Ltd., Wayne Bacon, reasoned that soybean futures will remain high until the U.S. is no longer the only supplier of soybean. He anticipates the prices to decrease after harvesting is done in South America. Based on the information gathered, I predict soybean prices to slide down, and stay relatively low in the near future. As for the next few days, I think soybean price is going to rebound next week, especially after dropping so drastically last week.
Compared to wheat and corn, price pattern for soybean appears to have more fluctuation, as indicated in the chart above. The price chart above shows the soybean future price change for the November, 2012 contract, which is expiring in less than 2 months. Prices tend to fluctuate more as contract approaches the expiry day. I anticipate S2X futures price to fluctuate more intensely as November approaches, although the same can’t be said for other soybean contracts.
Reference
http://www.agriculture.com/markets/analysis/wheat/wheat-falls-on-dem-concerns_11-ar26879
http://www.albertafarmexpress.ca/news/u-s-wheat-corn-dive-on-poor-exports-profit-taking/1001763217/
http://futures.tradingcharts.com/intraday/ZS/B2
http://futures.tradingcharts.com/intraday/ZWZ2?anticache=1350095089
http://www.portageonline.com/index.php?option=com_content&task=view&id=29160&Itemid=35
4 replies on “WEEK 5 (Part 2): The Road Ahead”
I agree with your opinion on soybean. Its price fluctuates and it’s not easy to predict. Enjoyed reading. Great work!
Thanks, Yijeong! 🙂
Hi,Vicky! It’s my turn to comment on your blog~
First,I want to say that I’m so impressed by your clear and beautiful layout.Mine can never compete with yours.Also,I found you are very good at using diagrams and graphs to convey complex imformation,making your blog brief but convincing.
It’s glad to see that we have the same stragety on corn.Let me tell you the truth.Despite I went 7 long on corn, at heart, I’m not that confident as I said on my blog.Just like you said, soybeans price is likely to slide down, and stay relatively low in the near future. I’m wondering if corn price would fall with soybeans,for they have the same movement pattern in general. Moreover, the sharply shrinking export sales in corn are not a joke,they’re for real,which probably means the corn demand is shifting to other crops,because corn price has been remaining too high for such a long time. Decreased demand and decreased supply are having a fight now,and I really don’t know who will be the winner(But according to up-to-date data on CME,the former one is beating the latter one ruthlessly).
I’ll pray tonight.And I’ll pull out of the market tommorrow if the corn price is still shrinking,in spite of great loss.However, I’m not gonna modify my strategy on the blog.I want to leave my computer and go to have supper now!!
Two more thing.
1.What’s your explaination of the initial jump in soybeans after USDA Wasda report released on Thuresday?I still don’t quite understand why it would spike instead of diving.
2.Could you teach me how to draw arrays on the graph?I saw you did it on the first entry.It’s really cool!
Hope you make big money next week!
Thank you for reading, and commenting on my blog, Mike. 🙂
I think the reason soybean futures price spiked on Thursday was because USDA forecasted that soybean domestic supplies could be tight next year. Also, while soybean production has increased by 9% from a month ago, it’s still 8% lower than last year. If we analyze it with technical analysis, it makes sense for soybean price to jump after a drastic drop in price on Wednesday.
Haha. The arrows were really easy to draw; I screen capped the graph onto paint, and used paint shape function to draw them. Try it! 😀
As for your corn contracts, like you said yourself, “what goes up must come down”. It works the other way around too: “what goes down must come up”! Well, at least in the trading world. If you feel uncertain about the price pattern, you could maybe offset half of your 7 contracts, and leave the other half in the market for the prices to rebound, although you would have to pay attention to the margins if prices do end up going down further. But hey, you are the better trader here! I’m sure you’ll be able to make the correct decision to get out of this corn situation! Good luck!