Futures Trading Week 2

Here is my trade and portfolio for Week 2:

 

My actions and reasons:

1. Buy live cattle

From the chart above we can see a spike in cattle futures price which goes up all the way from June.

The reason is that the last year’s record drought- which is the worst from 1930s- has negatively affect the beef herds, farmers don’t have enough pasture conditions or enough corn at the right price to feed their animal, so the production of beef  shrunk a lot.  News has it that the number of cattle placed in U.S. feedlots in August fell 11 percent from a year earlier to their lowest level for that month in 17 years. Supplies is predicted to be tight through the middle of next year .

My forecast: However, we are seeing more rain this year, so the pasture condition for raising cattle may recover a little bit, and the recent fall in corn price also cut down the cost of breeding, both of these news give some hope that the future cattle production would recover, even though it may take some time and would not come so soon.

So I expect the future cattle price to continue goes up for a short period before coming down again.

2. Short Milk

Analysis:

From the supply side:

As pastures recovering from the drought, they are very good at the moment heading into the peak of the milking season. Milk production in the largest diary exporter-New Zealand is rebounding to a record high, at the same time U.S. supply expands to an all-time high as well as a estimation of a 1.3 percent output expansion in EU in 2014. Overall, global production will gain 1.1 percent to a record 469.1 million tons in 2013.

From the demand side:

Strengthening demand from China’s 1.3 billion people may limit price declines as Chinese income grows. It is estimated that imports of whole-milk powder will jump 26 percent to a record 510,000 tons in 2013. Shipments expanded more than 10-fold since 2008 as contamination scares linked to local milk boosted demand for overseas supply.

China’s imports of New Zealand dairy products rose 34 percent in the first half. Should the government relax its one-child policy, annual powder demand may increase $2.9 billion.

“Demand is kind of the sleeping giant that most people aren’t paying attention to,” “Demand, especially out of China right now, is huge.

My action: Quite rush and then made some mistakes. At first, when thinking only the supply side, I short the milk. While later considering about the huge demand from China, I predict some positive trend in its price, so I covered and bought at the same time. Given another chance, I would choose to short again, because the trend is still not quite sure given the relative more volatile prices, so I expect it may fluctuate a lot but the general trend should be stable or fall a little bit.

3. Short corn

From the chart and my previous experience, it seems that it is a good time to buy corn based on the buy low sell high principle, I did so several days ago and bought some corn, but news from this video U.S. Corn Supply Grows, Sales Fall Most Since 1975 gave me some suggestions that the price may still under pressure to drop for a while, so I decided to short hoping to make use of this trend before buying back at its lowest point.

4. Buy Soybean

The chart shows a rapid rise in soybean price from August before coming down a little from this month. The news tells that the reason is mainly because the steady soybean import demand from China, and China will continue to buy U.S. soybeans until South America crops are harvested and start moving into the export channel from March 2014. Although the USDA expects this year’s harvest to be 4.4 percent larger than last year, the drought conditions expanded in parts of the Midwest in August which negatively influenced the soybean yield. Besides, Excess rain in April and May also prevented some fieldwork. Moreover, crop-insurance claims filed for 1.69 million acres of unplanted land intended for soybeans, compared with 159,579 acres last year.

So we could say that Soybeans still have a very strong demand base, and it probably would rise again after a short term adjustment.

In the last:

My analysis is basically still quite constrained  and my resource are generally only the recent news, hope next week I could develop into a little sophisticate method or have a little bit more insight. This game is amazing in that it push me to pay attention to some areas which I knew I should have see more but was always too lazy to actually have a glance at!