WEEK 9 (Part 1): The Went Right/Wrong

After seeing the drastic decrease in price at the end of last week, and the analytical charts for corn and soybean, I was certain that the future commodity prices for both would increase this week. Therefore, I went long on 3 soybean contracts, and 3 corn contracts. Along with the March 2013 soybean contract (S3H) that I had left from last week, I had a total of 7 soybean and corn contracts going LONG in the market on Monday (Nov 5^th) morning.

Unfortunately, my prediction for soybean was totally off this week, and as I was so confident about my prediction on soybean future prices increasing, I decided to wait until soybean prices increase back up again before offsetting the LONG contracts. I thought that even if soybean future prices kept on dropping, they would eventually spike up after they hit limit down. However, soybean prices never rebounded, and the prices dropped hastily for almost the whole week. Even when they did spike slightly on Tuesday (Nov 6^th), the increase was not substantial enough to go above my “price ins” by much. Also, I failed to recognize this spike on Tuesday (Nov. 6^th) morning; and since I never anticipated such a drastic price drop on Wednesday, Thursday and, especially not Friday, I didn’t even think of offsetting the soybean contracts at the time. Furthermore, I was expecting Wednesday (Nov. 7^th)’s U.S. election to dramatically affect the commodity prices. My prophecy was that all commodity prices should increase if Obama won, and the reverse would occur if Romney was elected. However, it clearly didn’t happen, as Obama did end up winning the election, but soybean future prices continued to drop on Thursday (Nov.8^th).

January 2013 Soybean Contract (as of Thursday, Nov. 8^th, 2012)

March 2013 Soybean Contract (as of Thursday, Nov. 8^th, 2012)

I was traumatized when I saw soybean future prices drop by another 20 cents on Friday morning. Instead of rushing to offset all 4 LONG soybean contracts, however, I decided to offset all the LONG corn contracts, which I ended up gaining a small amount from($699.00 + $74.00 + $686.50 = $1459.50), while the prices were still increasing. I also decided to go LONG on one more soybean contract (S2X), because my stubborn self still believed that soybean future prices would increase at anytime, after dropping so hastily and utterly for the whole week. Also, soybean future prices dropped so low, that I was almost certain that the system would just liquidate all the LONG soybean contracts by the end of Friday (Nov. 9^th). Hence, despite the major loss I was incurring from pressured soybean future prices, I offset 3 LONG corn contracts, and left 5 LONG soybean contracts in the market on Friday (Nov.9^th) morning.

When I checked the commodity prices again on Friday (Nov.9^th) afternoon after the market closed, I was literally staggered at the numbers that I saw – soybean future prices fell by another 47 cents. Surprisingly though, none of the soybeans contracts were liquidated, and most of them had a margin call. My potential loss on soybean from Friday (Nov. 9^th) came to a total of – $3525.00 – $3087.50 – $3087.50 – $2575.00 -$625.00 = -$12900

The sharp fall of soybean future prices could be explained by USDA’s crop forecast, which was released on Friday (Nov 9^th). Soybean future prices declined immediately after USDA predicted that soybean production would be 2.97 billion bushels, which was 4% higher than October’s estimation. Wheat and corn future prices also fell, but the decline in price was not nearly as dramatic compared to that of soybean. As for my contracts that are currently losing in the market, I am going to keep the LONG soybean contracts until soybean future prices rebounds again next week. I highly doubt the prices are going to spike up to above $1500/bushel again, my strategy is to reduce as much loss as possible on the 5 LONG soybean contracts.

January 2013 Soybean Contract (as of Friday, Nov. 9^th, 2012)