Monthly Archives: October 2012

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/

Be confident in my speculation! Don’t have too many second thoughts and try taking some small risks by investing in two-three contracts.

Close monitor of changes in market sentiments, and global supply and demand helps improve my strategy on trading

I will not trade on long term basis for my short/long position contracts, since there are many market uncertainties.. I would rather trade on weekdays going in and out of the market before TradeSim System stops trading on weekends.

I should also consider upgrading my cellular to a smartphone for updates on price quotes on a more regular basis. This keeps me in sync with the market.

With the lag in the tradeSim system in executing my contracts, I should invest few hours in advance before any price change takes place that affect my position value, causing unnecessary losses.

This past week, December wheat prices rose from a low of $846.6 to $860.20. Similarly, corn prices rose from a low of $626.3 to $634.6. I think prices for wheat and corn will trend down at the beginning of this coming week. Therefore, for next week or so, I will stick with short on wheat and/or short on corn in the first three days. Later on, depending on the market situation  I might stay on or change my position to long again.

On October 18^th 2012, I re-entered the market, with an expectation that corn prices would continue to increase in the next couple days. As I read through the commodity news on Huff Business Post, the commentator indicated that soybean, corn, and wheat prices will rise as some South American farming regions either get too much or not enough rain, particularly Brazil and Argentina.

In the case for Argentina, there has been too much rain in the wheat and corn growing regions, whereas Brazil was experiencing a problem of a lack of rain.

By taking a long position, I have made a small gain of $275.00 on one contract when the price in was $755.25, and price rises to $760.75. This helped me to increase my equity to from $27464.80 to $27739.80.

Thus, I was satisfied with my investment decision. However, if I were more confident, I could have invested on more long contracts to offset the huge losses of $12,536 in the past week.

I then decided to take on a short position since China’s economic slump signals a lower import in food supplies and raw materials. According to Huff Business Post on Oct 18, China’s economy grew 7.4% in July through September which was slower than 7.6% growth rate in the second quarter last year.

Although the corn futures were on the rise on Thursday, investors become increasingly concerned about the slowdown of global demand due to lower growth in the global economy. Thus, it is valid to take into consideration how the slowdown in quarterly growth in the Chinese economy relative to the previous year when I was making my investment decision.

At the end of Friday, when I checked my trade account balance, I made a loss of $100. Ultimately, I did not do very well on my investments. There is almost no gain, no loss. After all, I have only gained $175.00 from my previous long position on corn. Thus, as a short term investor, I should have listened to my instinct and stay long for corn until the market closes on Friday.

In the very end, my equity balance becomes $27576.34, with a net loss of $12,324.50.

http://www.agriculture.com/markets/analysis/corn/marketing-rules-f-success-in-2013_9-ar26629

Although this is not directly relevant to speculators’ investment strategy, I’ve found this interesting article via agriculture.com. It mentions farmers’ perspectives on investments. It has provided valuable advice to farmers as investors for their productions. Essentially, they have listed the following tips in this article for the farmers:

1. Get your inputs secured. With the large increase in global wheat and feed grain acreage in 2013, fertilizer and seed prices will be moving higher.

2. Try to arranging a flex-rent lease with your landlords. With corn at $8 and soybeans at $16, there are some unrealistic rent expectations for next year.

3. Stay realistic and disciplined in your marketing. The worst thing to do is to sell ahead a lot of crop one year and then sell none the next year. You could end up wrong two years in a row.

4. Stay aware of the global economic problems and the challenges we’ll face after the election this year. A strong U.S. dollar could pressure grain exports and grain prices. Farm prices and farm profits will be pulled down in the next one to two years unless some fundamental changes in how global governments – including the U.S. government – handle the current debt problems.

5. Take a long-term view by following the roadmap in the business plan. For instance, when the author has talked to his Illinois farmer, the author reminded him that despite the losses he suffered from many farms, he should look back at what he succeeded and calculate risks by being a disciplined “scale-up” seller and “a seasonal seller”

References

Grains-corn eases on harvest pressure, soybean level (Oct 5 Friday, Reuters)

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

Corn Prices Jump, report on shrinking supplies  (Wallstreet journal, sept 28, 2012);Owen Fletcher and Bill Thompson  

http://online.wsj.com/article/SB10000872396390443389604578024180178198160.html

Marketing rules for success for 2013

http://www.agriculture.com/markets/analysis/corn/marketing-rules-f-success-in-2013_9-ar26629

Chicago corn,wheat edge lower on corn harvest, Business recorder; Pakastian’s Financial Daily. Oct 5, 2012.

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

I do not have a particular strategy prepay, but I should definitely consider placing a price limit on orders to minimize my losses for all commodities contracts. Even when I am holding my contracts over the longer term period, I should be consistently checking the daily news to see what goes on in the market such that I would become more reactive to what goes on in the market, and would be able to minimize losses and recoup more profits.

Since we have a decline in corn imports by China, this also hurts US corn prices. China, as one of the world largest importer, also produces large quantity of corn along with other stocks.

This sufficiently helps domestic demand, but at the same time, the country could import supplies from the US to build its reserves

According to the US Grain Council, production is expected to increase by 5 million to 6 million tones yoy both yields and planted areas, but the group did not estimate the total size of the China’s 2012 corn harvest by looking at historical harvest in 2011.

This info indicates that we are not aware of the decrease in size of corn imports from the US to China as a result of higher harvest. All we know is that US imports of corn to China’d decrease.

As I observed a decrease in corn imports by China from the latest news this past Friday, I expect that, over a short period of time, there are profitable opportunities by putting on short positions for wheat and corn.

As risk averse investor, I will try putting a price limit prior to investing.

With a huge loss of over $12,000, I’ve learned my painful lesson.. to become a more prudent investor.

On the other hand, if I were to invest in soybeans. I would consider setting a limit and take on a long position. As I’ve seen from the USDA weekly report, soybeans sales has reached its highest in three months at 1.3 million tonnes of exports (as indicated in Business recorder, Pakastanian ‘s Financial Daily). I expect demand for soybeans would continue to increase as imports increase.

Hopefully, the snowfall is not so severe in the United States.. as this might create damage to soybeans and corn crops in the Mid-Northwest areas.

This week’s investment, with Dec corn and Dec wheat contracts, I ended with a loss of -$12,536, and an ending equity balance of 27,464.94.. a drastically increased in loss due to wrong investment approach.

My friend Brady advised me to withdraw from long positions for wheat, and corn.. and set a limit when selling for three of my futures contracts.

By setting a limit, it would have minimized losses by having a certain fixed price set prior to executing the futures investment.

During the week, I did not expect an increase in harvest for corn and wheat at all. However, the USDA report indicated that there is an increase in both commodities as a result of a bumper crop year for the US. However, I persisted in my belief that a rise in corn and wheat prices would continue to occur due to tight inventory supplies. As reported in the USDA in a quarterly grain supplies report on 28^th Sept, “Domestic corn inventories totalled 988 million bushels as of Sept. 1, the lowest level in eight year. Corn supplies were below the average analyst forecast of 1.126 billion bushels in a Dow Jones.”

However, on Oct 1^st and onwards price for corn and wheat continue to decrease. On the 28^th, Informa Economics said that it expects a raise in corn production forecast to 11.194 billion bushels, based on a yield of 127.0/acre. Since corn production is expected to raise, the availability of corn in market increases. In effect, wheat also declines due to its close relationship with corn for production substitutability in cattle feed.

Thus, we can see that the crop damage from the most severe US drought was not as bad as expected. In particular, crop harvest for wheat and corn revive in a timely fashion as rain pattern resumes in August.

Even though I was taking a long position in wheat and corn, believing that prices would raise steadily in the next few days of the week, I should still bear in mind that prices for both commodities are highly volatile, and that I should regularly monitor the USDA announcements to anticipate the potential consequence to crops’ supply and demand; and predict the reactions from majority of the rational speculators.

For instance, in my case above, the USDA announced a higher than expected harvest  for the US, this means that I should take into consideration that higher availability of crops in the market puts downward pressure on cash prices such that there’d be more speculators shorting the futures contract to gain profitable returns.  

In effect, I should react more swiftly to the news and change my position and add in a limit to my futures investment sooner rather than waiting till I have incur huge losses, then withdraw the market.