Vicki Yow, The University of British Columbia

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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/

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.