Category: TRADING GAME

Wheat

Export demand for wheat is expected to increase in the coming weeks for the U.S.suppliers; since wheat supplies are running low in the competitor exporting countries, such as Russia. As well, the recent ban on wheat export in Ukraine is also causing export demand to increase in the U.S. Interestingly, due to a disease ravaged harvest, which caused most wheat to fail to meet the quality requirement for bread, Britain is going to be a net wheat importer for the first time in ten years. Furthermore, the recent dry weather is hurting crop production in Australia and the U.S. plains. The dry weather and lack of moisture in the U.S. plains could possibly cause difficulty for winter wheat planting, and this is going to renew concerns about drought stress on the crops. An increase in exporting wheat demand, along with a possibly decrease in wheat product are likely to increase the wheat future prices in CBOT.

In addition, even though wheat future prices have been declining for the past two months, technical traders are going LONG on December wheat contracts, as they expect December wheat future prices to go up.

Corn

In the U.S., corn future prices have remained high due to reduced harvest yield. As well, farmers have been increasing their corn storage as harvest period approaches to an end. On the other hand, chief analyst for Northstar Commodity Investment Co., Mark Schultz, claims that oversea demands, ethanol production, and domestic feed demands for corn are all shrinking. People are no longer interested in corn, because meat and fuel productions are not making any profits. In the mean while, corn traders are waiting for the USDA to report the latest U.S. crop size, and it is possible for corn futures to continue moving in a sideway pattern. The recent hype on Hurricane Sandy could also have an effect on corn future prices. South County farmers who still had standing corn in their fields cut all of them in anticipation of Hurricane Sandy last week. Both high winds, and heavy rains could severally damage corn crops.

Recent news on corn showed signs of corn future prices going in different directions. Therefore, I think it is possible that corn price will continue to show a sideway pattern, and have fluctuations from day to day.  As for the corn future price pattern for the next few days, I expect corn futures to spike early next week, rebounding from last week’s dramatic fall.

Soybean

Due to five consecutive years of decline in soybean growth and continuous growth in domestic demand, China’s soybean imports have increased to 57.5 million tonnes in 2012, and reached record high. According to the latest report from USDA, it is possible that China’s demand for soybean is going to reach 61 million tonnes in 2013. Also, major soybean producers after the U.S., Brazil and Argentina have started planting crops for next spring; traders can expect soybean future prices to be pressured from increasing in production, but increasing in demand from China is likely to pull the commodity price in the opposite direction.

Looking at the upcoming future, soybean future prices have been declining for two days straight (as shown above) last week. I highly anticipate the prices to rebound early next week. Since November, soybean contract is approaching its expiry date, and rapid fluctuations in S2X future prices can be expected until it expires. Hence, I plan to go LONG in January soybean contracts; since commodity future prices for contracts in the further future are more likely to follow the price pattern than the ones near its expiry dates.

 

Reference:

http://www.agriculture.com/markets/analysis/corn/grains-drift-lower-friday_9-ar27123

http://www.albertafarmexpress.ca/news/cbot-wheat-corn-end-lower-soy-higher/1001799830/

http://www.businessweek.com/news/2012-10-26/wheat-climbs-on-demand-for-u-dot-s-dot-supplies-corn-soy-gain

http://news.providencejournal.com/breaking-news/2012/10/so-county-farmers-cut-corn-bracing-for-high-winds-and-rain.html

http://www.nzweek.com/business/chinas-soybean-imports-to-reach-record-high-18402/

http://online.wsj.com/article/DN-CO-20121026-009942.html

http://online.wsj.com/article/DN-CO-20121026-009477.html

 

Website: http://www.agriculture.com/

The Agriculture website was recommended to me by my fellow classmate, Cindy Bae a few weeks ago, and I have been using it since. Aside from the latest news update on agricultural commodities, Agriculture also provides up-to-date weather forecasts along with maps, weekly moisture index, and palmer drought index. As well as soil moisture, precipitation maps, weather, and market report, etc. (http://www.agriculture.com/weather). It is a very useful website for both the farmers and the traders.

It’s also worth mentioning that Agriculture has created some fun polls (http://www.agriculture.com/polls) that usually shows up on the side bars for web browsers to vote, and view results. See examples attached

These results should never be used as official evidence to predict the futures market price patterns. Since there is no way of testing the accuracy of the results of these polls, and they are probably highly biased. They are used for fun purposes only.

Twitter

Reuters Top News @Reuters
CME Group @CMEGroup
Dept. of Agriculture @USDA

I started following Reuters Top News, CME Group, and Department of Agriculture on twitter about two weeks ago. They update their twitter account as frequent as they update their official websites. I find it easier to keep up with the recent market trend after I followed them. Also, they almost always provided website links along with the corresponding news that they posted. This saves me time from going to their sites individually and look for the specific news.

 

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.10^th), 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. 11^th). 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 5^th 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. 11^th). 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://www.bloomberg.com/news/2012-10-12/corn-soybeans-decline-on-slowing-demand-for-u-s-supplies.html

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/

 

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.12^th)’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.11^th), 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.12^th). 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 4^th. 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://www.businessweek.com/news/2012-10-12/corn-trims-weekly-advance-on-speculation-rally-may-cut-demand

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

http://www.winnipegfreepress.com/business/us-slightly-lowers-corn-harvest-projection-as-droughts-impact-becomes-clearer-amid-harvest-173703471.html

 

 

BLOG: http://nogger-noggersblog.blogspot.ca/

I randomly came across Nogger’s Blog the other day, and was surprised by the insightful information and thoughts presented by the blogger. The owner of the blog has worked as a shipper, merchant, trader & broker, in the agriculture field for over 30 years. He updates his blogs on a regular basis, with updated news, data, and information, as well as personal thoughts and opinions. If one is not currently up to date with the recent commodity futures market, reading his blog would help the individual to go back into the loop instantly. Although, readers still have to be aware of the potential biasness presented in the blogs. As Nogger disclaimed himself, all comments on the website are sole opinion of the blogger, and they are not considered as professional advises. He is not responsible for the accuracy of the information and data.

WEBSITE: http://agrimoney.com/

Agrimoney is one of the websites that’s been frequently used since the beginning of this trading game. I chose to suggest Reuters (http://in.reuters.com/) over Agrimoney two weeks ago, because I found myself visiting Reuters on a daily basis, but it was not the case for Agrimoney. Nevertheless, it is still a resourceful website that provides the latest news for commodities, as well as their future prices. The one feature I like the most about Agrimoney is that they have an “Opinion & Features” section (http://www.agrimoney.com/4/opinion/), which contains experts’ and officials’ thoughts on the recent commodity price pattern change. I find it more useful than news, as news only gives me information on what has already happened, and most of which were statements, which are none-arguable. It’s not as useful as opinions when it comes to forecasting the upcoming price change in futures market.

There was no trading done on Monday and Tuesday, because I wasn’t sure which way the market was going after the release of last Friday’s USDA report.  Also, the goal was to use the “spread order” to reduce risk this week.

In general, commodity prices were pressured during the past week.  Prices were brought down by the increase of fund selling, as well as early corn and soybean harvesting.

Wednesday (Oct. 3^rd )

POSITION	SUBMIT   DATE	TYPE	CONTRACT	QUANTITY	EXECUTED
SHORT	Oct 3rd	Market Spread	W2Z	1	Yes
LONG	Oct 3rd	Market Spread	W3H	1	Yes

Potential Loss/Gain

 

I decided to put a spread order on wheat, since spring wheat futures prices have been fluctuating up and down last week. Looking at the pattern, wheat futures increased on Wednesday, and decreased on Friday. December contract increased, but March contract decreased on Thursday. Decreased wheat price was partially due to the slightly lower than previously estimated harvesting. For instance, Statistic Canada’s estimated domestic wheat production was 26.73 MMT, which was lower than the anticipated 27 MMT. Kona Haque, head of agricultural research at Macquarie Securities, said that harvest pressure is the biggest pressure for crop prices.

Instead of offsetting them at the same time, I’m going to wait for wheat price to drop to offset W2Z, since it’s currently in the SHORT position, and offset the currently LONG W3H after the prices bounces up.

Thursday (Oct.4^th)

Missed Opportunity for Possible Gain?!

Earlier last week, soybean price dropped by nearly 2% and hit 3 month low due to unanticipated good harvest yields. The better-than-expected harvest was a result of the August rain, which strengthened the drought-stressed crop. As well, shower in southern Brazil and Argentina also contributed to rising crop potentials.

After observing soybean price drop for 2 days straight, I decided to take advantage of the upcoming price spike after soybean future hits limit down.  Soybean price stopped its drastic drop, and started to fluctuate on Wednesday. Although there was an increase in price, soybean future wasn’t skyrocketing. Instead of going LONG on Wednesday, I wanted to wait until Thursday to see where the soybean market was heading, before sending in my order.

However, by the time I checked the soybean price on Thursday morning, price has already rebounded. I wasn’t risky enough to go LONG after the soybean future shot up by 27 cents already. Hence, I decided to put a hold onto my LONG order for soybean.

I really should have entered the soybean market on Wednesday, and left it overnight to catch Thursday’s price spike. I lost by losing the potential gain that I could’ve received from going LONG while the soybean price was high.

Above is the soybean future intraday chart, screen captured on Thursday after the market was closed. I should’ve entered the market on Wednesday (Oct. 3^rd); just before price bounced up.

 

Reference

http://af.reuters.com/article/commoditiesNews/idAFL3E8L26AR20121002

http://www.agriculture.com/markets/analysis/soybeans/soybes-rebound-grains-end-mixed_10-ar26708

http://www.brecorder.com/markets/commodities/europe/83943-chicago-corn-wheat-edge-lower-on-harvest-progress-.html

http://www.businessweek.com/news/2012-10-02/soybeans-decline-as-rain-boosts-south-america-crops-corn-falls

http://futures.tradingcharts.com/intraday/SX2?anticache=1349400361

http://www.reuters.com/article/2012/10/04/crops-canada-idUSL1E8L38VH20121004?type=marketsNews

http://www.farminguk.com/news/Australia-s-wheat-production-prospects-continue-to-decline_24319.html

http://www.minnesotafarmguide.com/news/markets/fund-selling-row-crop-harvest-pressure-wheat-market/article_1728b52e-0f26-11e2-a4c1-001a4bcf887a.html

 

USDA’s report on monthly supply and demand report will be released on Thursday, Oct. 11^th, 2012.  Corn and soybean future prices are likely to remain stable until the report is released.

Commodity futures prices have been low for the past week largely due to the reduced import by China, as the nation was closed for a national holiday. China is likely to increase import next week, which might cause the commodity prices to bounce up.

Wheat

An industry association said that Indonesia, Asia’s top importer of grain, may impose 20% wheat import tariff to protect domestic mill industry. This is going to decrease Indonesia’s demand for wheat.  USDA also reported that wheat production in Idaho has also decreased by 15%. Moreover, Pakistan’s government is working on recovering wheat storage charges. Recent estimates by the Australian government shows that wheat production is likely to decline by more than one million tons. A lower Australian wheat crop reduces the world wheat supplies, and increases the price. At the same time, Russia is still looking at export control.  Also, as export in Russia and Ukraine decreases, France is possibly going to increase wheat exports.

The gathered information shows indicators of both upward and downward moving of wheat price for the near future. The chart below is wheat’s intraday commodity futures price for the past week. There’s a clear downward trend on Oct. 5^th, 2012. It is likely that price is going to rebound at the opening of the market after the weekend.

Corn

As of Oct 5^th, 2/3 of the corns are done harvesting. Rain in the Corn Belt over the weekend is likely to slow things down a bit. Corn basis is well above average in most locations, although corn future is still struggling a bit. Furthermore, with pest problems and recent typhoon impact in China, there could be a dramatic yield reduction in corn. China is the world’s second largest corn producer; a reduction in supply could have great effect on the world corn market, and potentially increase the corn future price.

There was a sudden drop in corn price between Oct 4^th, and Oct 5^th. There could potentially be an expeditious price spike in response to last week’s abrupt price drop after the market opens on Monday.

Soybean

As of Oct 5^th, soybean is half way done harvesting, but harvest is going to be slowed for a few days due to the recent showers. In Canada, Manitoba farmers expect a yield of 661,300 tons of soybean this fall, which if well above last years’ annual record. Investment Banking Firm, Goldman Sachs, expects soybean prices to be lower than corn and wheat future prices, due to bigger than expected soybean supplies from the U.S..

Soybean future price spiked earlier last week as a result of a large purchase by China, and remained high since. Judging from the chart below, it is unlikely for soybean price to continue increasing without dropping first. I expect to see some fluctuation in soybean price earlier next week, followed by a decrease in soybean future after the release of the USDA report on Thursday.

 

In general, I anticipate commodity future prices for wheat, corn and soybean to remain relatively stable, with slight fluctuations for the next few days. There will be a dramatic price spike or price drop in commodity futures as a result of USDA’s report release on Thursday Oct.11^th, 2012.

 

Reference

http://af.reuters.com/article/commoditiesNews/idAFL3E8L53Y120121005

http://www.brecorder.com/agriculture-a-allied/183/1245499/

http://www.brecorder.com/agriculture-a-allied/183/1245497/

http://www.businessweek.com/news/2012-10-05/french-wheat-exports-seen-by-senalia-rising-on-demand-next-month

http://farmfutures.com/

http://farmfutures.com/story.aspx/usgc-projects-strong-chinese-corn-crop-17-63880

http://futures.tradingcharts.com/intraday/CZ2?anticache=1349593362)

http://futures.tradingcharts.com/intraday/SB/B2

http://futures.tradingcharts.com/intraday/ZW/C2

http://www.winnipegfreepress.com/business/Record-soybean-and-corn-for-grain-crops-expected-this-fall-in-Manitoba–172659711.html

 

 

http://farmfutures.com/story.aspx/soybeans-bounce-back-17/63837 (Audio)

I stumbled upon this audio clip regarding the soybean price spike on Thursday (Oct.4^th, 2012). Bryce Knorr, Farm Futures Senior Editor, discussed the reasons behind the recent price change in commodities such as crops, wheat and soybean. He mentioned that the lack of Chinese presence in this weeks’ market was due to their national holiday that had affected the prices to some extent. Also, Europe’s slow progress, including the Spain government asking for rescue fund, also contributed to the price change. On the other hand, the weather hasn’t really been a big factor to the price fluctuation.

http://farmfutures.com/

Farm Futures is a very resourceful website for commodity news and experts’ reviews and thoughts on the most recent future price change. They also provide the updated market movement, such as the one shown below.

 

http://futures.tradingcharts.com/

Trading charts provides up-to-date commodity and future charts, prices, quotes, news and currency changes. Free and quick access to commodity prices and charts and allows its’ users to have personalized charts menu. They also have a commodity traders’ forum (http://tfc-forum.tradingcharts.com/forum/), which allows commodity traders and brokers to share experiences and discuss trading strategies. Personally, I’ve been quite dependent on Trading Charts for commodity charts.

 

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