Yearly Archives: 2012

http://www.agweb.com/crops/soybeans.aspx

–> Gives us useful comments on crops, harvest news and updates, news guide on  grain commodities, cotton, hay and seeds.

http://www.forexpros.com/commodities/us-soybeans-technical

–> Data and indicators on technical analysis

http://www.farms.com/Commentaries/video-what-could-changes-to-the-canada-grain-act-mean-to-my-farm-57315.aspx

–> Insights: Canadian Grain Act and effects in the grain industry

How does it affect farmers? What role does it play in grain trade? Supply chain risk management for farmers.

In the real world, technical analysis is definitely useful especially looking at short term trends using geometric methods such as descending vs. ascending triangles, head and shoulders etc.

I also find candle light charts helpful in understanding trade volume difference in open and close along with high and low in price, which reflect forces of supply and demand in the futures market.

The annotated example in the chart shows a stock that has a gap opened up. Prior to the open, the buy orders quantity is above that of sell orders, and the price increased to attract more sellers. Initially, there was a rapidly increasing demand. And thus, the intra-day low reflects the availability of supply (sellers). The close represents final price agreed by the buyers and sellers. It is below the high and closer to the low. This illustrates that despite of having a strong demand from buyers during the day, it is ultimately supply that prevailed and put downward pressure of the price. Here, we observe the battle between supply and demand. So basically, higher prices reflect a surge in demand, and lower prices reflect an increase in supply.

If I learned technical analysis earlier on, it would have been useful in predicting futures price based on the pattern or trend analysis.

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On Thursday, Nov 22nd, I have just gone back into my Tradesim account. It says no trading when I tried to browse for contract orders. I wanted to offset the long position I have for soybeans and get a new short contract. I’m losing $5037 in soybeans. Not sure what has happened here.

From market trend, it looks like I will continue losing on my equity balance. It was all because of the glitches on tradesim. I thought I have exited to market earlier two weeks again for my four long contracts on January soybeans (S3F) and March corn (C3Z). However, this isn’t the case.

If I manage to enter the market to change my trading strategy, I will change my position to short for soybeans, and possibly getting two short contracts.

Turns out that soybeans is on the rise based on US’s turkey day. However, for some strange reason, I have incurred $4,512 worth of losses on tradesim.. with a lower net equity balance of $26,427.64. What a pain?!! I guess, at the end of trading game, I still haven’t managed to recoup all my losses.

 Lesson learned: when in doubt, exit the market sooner the better!

Now that I have learned my lesson of not taking opposition future positions, I changed from long on corn to short on corn, and short on soybeans.

Logically speaking, my approach is correct, since soybean and corn prices have linkages within the feedlot and crusher market. Surplus in corn market would also drive down prices of soybeans in the market. If feedlots demand for corn has been saturated.. so as soybeans. As corn price decreases, the market price linkage, in effect, offset the price drop in corn by transmitting the effect of lower prices to soybeans.

However, I have not taken into account that since corn contract is in March and soybeans contract is in January.. the time difference implies that these two crops could face different shocks.

In effect, corn and soybeans prices are always consistently moving in tandem. Thus, this explains the reason why I incurred a $112.50*2 = $225 in corn, when I have a gain of $562 in my soybean contract.

Net gain: $337; equity balance: $25,420.64

Holding 15 – short on C3H                  mark to market

price in:       740.25

today’s price:  742.50

committed:      $1917.50

gain/loss:      $-112.50

Holding 16 – short on C3H                  mark to market

price in:       740.25

today’s price:  742.50

committed:      $1917.50

gain/loss:      $-112.50

Holding 20 – short on S3F                  mark to market

price in:       1538.00

today’s price:  1526.75

committed:      $3800.00

gain/loss:      $562.50

Based on the price trend analysis, March corn contract is going to decline in the next two days until Tuesday. I will change to a long position thereafter before I start losing more money in my C3H contract.

For soybeans in Jan, there is pattern of a decline in four to five days range and a surge in three days. Prior to the trading day on Monday, I think I should change my position on soybeans to long.. as Monday would be the day when soy prices reaches another turning point (change in direction from decreasing to increasing from Tuesday to Thursday).

CH3 Futures Price Trend

S3H Futures Price Trend

“Corn Slip on exports” DowJones newswire

http://www.agriculture.com/markets/analysis/corn/cn-futures-slip-on-sluggish-expts_9-ar27280

“Future slides as exports remain weak” Wall Street Journal

http://online.wsj.com/article/DN-CO-20121102-009147.html

“Corn and soy pressured by a strong dollar” DROVERS, American’s beef business source cattle network.

http://www.cattlenetwork.com/cattle-news/Corn-and-soy-markets-Pressured-by-Strong-Dollar–176978811.html?ref=811

My equity balance is $26735.07 this week, with a net loss of $812.5 from $312 loss on each of the three March corn contracts I invested, and $62.50 gain from each of the two January soybean contracts. Thus, I have a gain in short for soybeans for $125, and a loss in corn for $937.50

Rationale for long on corn:

Although the technical analysis have indicated that the prices for corn is trending down in the past couple days until now (Oct 25-29), I am planning to hold it over the course of this week in anticipation that corn prices would rebound up above the previous level above my price-in, $1536. Turns out that I am not certain about the correlation between corn and soybean prices, but the downward movement of soybean prices creates pressure on corn prices such that corn is at its lows in mid-October. Corn and soybeans might be reacting to a common demand shock such that they have price linkages, because these two commodities have similar required production conditions.

Short for soybeans:

There has been anticipation that there is a positive supply shock in soybeans. The market has large in-flow of soybean supply due to a bumper crop year ’13 for Brazil and Argentina. There is an expectation for the bumper crop year due to better weather conditions favourable for soybeans. Therefore, I think soybean prices will continue to trend downwards.

This week, I have a small gain of $125 for two soybean contracts, and only a loss of 937.5 in corn. Thus, my net loss is $812.5. I will continue to invest on soybeans; possibly acquiring more long contracts for soybeans if prices continue to go down.

For corn, I will wait for few more days for prices to rebound above my initial buying price. I would continue to hold long and observe the price trend in the next few days. If price is reaching the peak in on Wednesday or Thursday, I would change to a short position.

For soybeans, I would hold onto it and maintain my short position this week.

“COMMODITIES-Mostly down as storm hits trade; soy off 2 pct” October 29, 2012. Reuters, UK.

http://uk.reuters.com/article/2012/10/29/markets-commodities-idUKL1E8LTAMM20121029

“Strong Long Term Outlook for Prices” Agweb. October 26, 2012.

http://www.agweb.com/article/strong_long-term_outlook_for_prices/

Tejeda, Hernan; and Goodwin, Barry. “The implication of ethanol-driven shocks in corn, soybeans, and cattle markets”

http://www.farmdoc.illinois.edu/nccc134/conf_2009/pdf/confp05-09.pdf

>> a very interesting paper from the University of Illinois

I highly recommend  individuals who are interested in price linkages to read this!

Ukraine wheat – getting into dire situation (By Jeff Caldwell, Oct 19, 2012)

According to a senior agricultural meteorologist from MAD earth-stat, Don Keeney, “Dryness persists across North Caucasus and Volga Valley, where some stress is occurring on early growth of the wheat.”

Such a bad weather condition creates lower potential crop yield. This is something that I need to be aware of… it might be the case that prices of wheat would increase due to the fact that exportable wheat stocks will be exhausted earlier in mid-November.

There is a very high likelihood that wheat supply might come short than expected. Thus, I need to take cautious care and do more research prior to investing in wheat.

Source: http://www.agriculture.com/news/crops/ukraine-wheat-situation-turning-dire_2-ar26988

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Harvesters harvesting corn at a record high pace.. (By Chris Sandler, Oct 16th 2012) 

According to Bloomberg news, an early spring and a hot summer in Dakotas leads to a sooner harvest for corn.

In addition, the recent report from the Illinois Department of Agriculture, farmers in Illinois are harvesting a corn harvest in a faster rate than historical observations.

Also, the East Central Illinois News Gazette reported that “the Illinois farmers have already harvested 71 percent of their crops, compared to the 29 percent that had been harvested at this time in 2011.”

Source: http://www.agriculture.com/crops/corn/cn-harvesting-in-illinois-progresses-at_136-ar26915

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`Corn Belt moving northward with climate change` By Alan Bajerga, Bloomberg News, Oct 21st 2012. 

Climate change has altered the world production in ag-commodities. In particular, there had been a profound impact for corn producers. Hot summer along with the drought resulted in the lowest acre of corn produced in three years for farmers in Kansas. In effect, this year, farmers are trying to substitute less water-thirsty crops for corn, such as wheat and sorghum. On the other hand, there was even a triticale, a wheat-rye mix popular in Poland. As for Canada, corn acreage in Manitoba (which is merely 700 miles away from Kansas) has nearly doubled over the past decade due to weather changes and higher prices.

Source: http://www.post-gazette.com/stories/news/us/corn-belt-moving-northward-with-climate-change-658498/