Weekly Positions Update - 9/02/07

Date	Position	Qty	Month/Yr	Contract	Strike	Call/Put	Entry Price	Last Price	Profit/Loss	Market Value
01/22/07	Long	1	DEC 08	Cotton			63.00	70.00	$3,500.00
04/16/07	Long	1	DEC 08	Cotton			64.50	70.00	$2,750.00
07/27/07	Long	1	DEC 07	Coffee 'C'			115.30	115.70	$150.00
06/19/07	Long	1	DEC 07	Coffee 'C'			120.50	115.70	($1,800.00)
03/23/07	Long	1	SEP 08	KC Wheat			502	595	$4,650.00
03/29/07	Long	1	NOV 09	Soybeans			828	869	$2,050.00
08/11/06	Long	1	MAR 08	Sugar #11			14.50	9.79	($5,275.20)
06/04/07	Long	2	JUL 08	Sugar #11			10.05	9.88	($380.80)
08/01/07	Long	1	JUL 08	Sugar #11			10.48	9.88	($672.00)
10/18/06	Long	1	JUL 08	Sugar #11			12.08	9.88	($2,464.00)
03/20/07	Long	1	JUL 08	Wheat			488	601	$5,650.00
03/21/07	Long	1	JUL 08	Wheat			493	601	$5,400.00
Net Profit/Loss On Open Positions:									$13,558.00

Current Cash Balance	$30,091.09
Open Trade Equity	$13,558.00
Total Equity	$43,649.09
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$43,649.09

Cashed out: $5,000.00
Total value: $48,649.09

Wheat Up Big - Again!

Check out this 6-month chart:
http://charts3.barchart.com/chart.asp?sym=ZWU7&data=A&jav=adv&vol=Y&divd=Y&evnt=adv&grid=Y&code=BSTK&org=stk&fix=

Though unfortunately I am not basking in the full glow of this rally, because I own next year's contracts.

Why are contracts lower for next year? I believe because record high prices will prompt farmers next spring to plant more wheat - which should bring more supply on the market and drive down prices.

However that begs the question - where is this extra land going to come from? Farmers are currently planting corn from coast to coast at the expense of crops such as wheat - so that balance should swing back in wheat's favor next year.

Soybeans and cotton are the other two crops that often share land with wheat and corn - so keep an eye on these two. Soybean prices are relatively high, but cotton prices remain cheap - and perhaps part of this thinking is fueling the current rally in cotton.

Wheat Up Again - Two Day Record Rally

From Agora's 5 Minute Update

“Wheat is up another 20 cents this morning… that’s a two-day record rally.” says our Maniac Trader Kevin Kerr. Wheat has been shooting up all year long, and is currently at an all-time high of $7.60 a bushel. Since the start of 2007, wheat’s up 51%, and according to Kevin, it still has room to grow [sic].

“Wheat is actually becoming a victim of its own success,” says Kevin. “It seems like there just wasn’t a lot of forethought or planning on the government’s part… It just told farmers, ‘Grow wheat and we’ll pay you’ without a serious plan to combat an increase in transportation, storage and other rising cots.”

“In essence, record wheat prices are now the result of another infrastructure problem. The agricultural pipeline is full and not able to handle the increased volume. Crops are perishable and time is money. With land rates, fuel costs and wages rising, every additional cost takes a bit out of an already shrinking profit pie."

Cotton down 13% in August

Another credit crunch victim - cotton.

Cotton prices plummet in Aug

Something we need to think about going forward. Are most cotton positions unwound by the hedge funds? Was today a strong buying day for the funds?

I typically invest on fundamentals, but I learned the hard way a few weeks back that hedge funds can move these markets quickly.

Big Day for Cotton

Check out this chart - thank you Toby for the link:
http://charts3.barchart.com/chart.asp?sym=CTZ7&data=A&jav=adv&vol=Y&divd=Y&evnt=adv&grid=Y&code=BSTK&org=stk&fix=

I don't know much about technical analysis - anybody out there know what to make of this?

Worldwide Droughts

From Agora's Daily Reckoning:

Australia, one of the world's strongest performing economies over the last decade, is in the throws of its worst drought in recorded history. Earlier this year, Prime Minister John Howard told a largely non-religious Australian population to, "hope and pray there is rain."

Down Under, drought is wreaking havoc on the nation's major export crops. Production of cotton, a notoriously "water-heavy" crop is predicted to fall by 29% this year. Given that Australia is the fourth largest cotton producer in the world, this is bound to have widespread effects. Many industry analysts believe the chance for Australia's cotton industry to recover for the 2008 period has already expired.

Wheat is another crop that has been all but decimated by lack of irrigation. In Australia, the world's third largest producer of wheat, the 2007 crop fell a staggering 29%, down almost 10-million tones. On the other side of the equator, droughts in Canada have contributed to their wheat production forecast being cut by up to one fifth and China's output is estimated to come up around a tenth lower thanks to water-related catastrophes – both drought and floods. Over in the Ukraine, the world's 7th largest wheat producing country, shipments will be a full 58% lighter this year thanks to, you guessed it, drought.

These shortages, coupled with rapidly increasing demand from emerging nations, has seen wheat prices soar to record levels. Last week, wheat traded for $7.44 a bushel on the Chicago Board of Trade. In the UK, bread making wheat was trading at almost $400 per tone...double last year's price.

Full article

Crude Over $73, Gas Inventories Shrink Again

From the WSJ:

SAN FRANCISCO -- Crude-oil futures topped $73 a barrel Wednesday, their highest level in two weeks, as investors reacted to U.S. data showing supplies of motor gasoline supplies fell for the fourth week in a row and crude inventories dropped more than the market expected.

Crude for October delivery was last up 2.1%, adding $1.48 to stand at $73.21 a barrel on the New York Mercantile Exchange. This put the contract at its highest level since Aug. 15.

Crude inventories fell by a bigger-than-expected 3.5 million barrels, down to 333.6 million barrels, for the week ended Aug. 24, the Energy Department reported in its latest update on U.S. petroleum stockpiles.

Supplies had risen 1.9 million barrels the prior week, but that came after a total decline of nearly 19 million barrels over a six-week span, according to government data. Separately, the American Petroleum Institute reported a drop of 4.9 million barrels in crude last week, pegging the total at 331.5 million barrels.

Motor gasoline supplies declined by 3.6 million barrels to 192.6 million, the Energy Department said. They're 8.2% below the year-ago level and have now declined by 12.1 million barrels over the course of four weeks, the data showed. As measured by the API, supplies of motor gasoline fell by 2.4 million barrels, sinking to 195.2 million barrels in the latest week.

Full article (subscription required)

Wheat Busts All-Time High

Courtesy of Agora's 5 Minute Forecast:

After hovering at an 11-year high for months, wheat busted through to $7.50 per bushel last week — its highest price ever.

Canada — the world’s second largest exporter — announced this year’s crop would be 20% smaller than previously expected.

Japan’s Ministry of Agriculture, Forestry and Fisheries has announced that it will increase domestic prices for the second time since 1983 — by a staggering 10%. Instant noodle maker Nissin Food Products has already publicly expressed interest in raising prices for the first time in 17 years.

In Europe, where wheat prices have nearly doubled this year alone, Italy’s Association of Pasta Manufacturers recently announced its products would cost 20% more in the coming months. French patisseries have united and agreed on a nationwide 5-7% hike on the venerable baguette.

Agora 5 Minute Forecast

Weekly Positions Update - 8/26/07

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss	Market Value
01/22/07	Long	1	DEC 08	Cotton	63.00	67.15	$2,075.00
04/16/07	Long	1	DEC 08	Cotton	64.50	67.15	$1,325.00
07/27/07	Long	1	DEC 07	Coffee 'C'	115.30	119.20	$1,462.50
06/19/07	Long	1	DEC 07	Coffee 'C'	120.50	119.20	($487.50)
03/23/07	Long	1	SEP 08	KC Wheat	502	578	$3,800.00
03/29/07	Long	1	NOV 09	Soybeans	828	844	$800.00
08/11/06	Long	1	MAR 08	Sugar #11	14.50	9.72	($5,353.60)
06/04/07	Long	2	JUL 08	Sugar #11	10.05	9.86	($425.60)
08/01/07	Long	1	JUL 08	Sugar #11	10.48	9.86	($694.40)
10/18/06	Long	1	JUL 08	Sugar #11	12.08	9.86	($2,486.40)
03/20/07	Long	1	JUL 08	Wheat	488	587	$4,950.00
03/21/07	Long	1	JUL 08	Wheat	493	587	$4,700.00
Net Profit/Loss On Open Positions:							$9,665.00

Current Cash Balance	$30,091.09
Open Trade Equity	$9,665.00
Total Equity	$39,756.09
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$39,756.09

Cashed out: $5,000.00
Total value: $44,756.09

Bad grain crops?

From Agora's Kevin Kerr:

“The flooding and prior steamy hot weather,” reports Kevin Kerr from the commodity pits, “are going to make this year’s harvest a big disappointment.”

“Kernel counts for corn are poor, and with all this wet weather, many soybean crops are underwater or will get hit by mildew and disease. Not to mention the fact that farmers simply can't get equipment into the fields. Heck, you'd need a combine on pontoons in some places.

“High hopes from planting intentions in April now seem like a distant memory. I expect bean yields will be awful and corn to be much lower weight and quality than projected. All this means even higher prices, especially this winter.”


Agora 5 minute update

Reducing Leverage

Scary moment last Thursday.

Like many commodity investors, I was feeling good about the fact that commodities are not highly correlated with other asset classes. Or so I thought.

My account had been holding up well throughout the credit crunch. Then all hell broke loose on Thursday. Many hedge funds had margin calls, and were forced to close out positions to stay afloat. This included high quality blue chip stocks, and of course commodities.

My account opened up the day around $51K. By mid-morning Pacific time, it was down to $40K. I closed the window - couldn't bear to look. After the market closed, it had dropped all the way to $33K. $18K in one day. Ouch.

I was downright nervous heading into Friday morning. I still had all my positions, and no way out. I only had about $6K in margin buffer - another day like Thursday, and I was going to be hit hard with margin calls. The entire thing looked like it could unravel.

Fortunately, Helicopter Ben opened up the money faucets Friday morning. My account gained a bit back. Disaster was averted for the time being.

It was irresponsible of me to be so highly leveraged. It works great when prices are moving up. But you run the risk of being completely wiped out when things turn against you. I imagine this is why most people get creamed trading commodities.

So this week, I pared back a couple positions. Sold Natural Gas, which is a huge position. I bought after the Amaranth debacle originally. I still love NG long-term, but I don't have enough $$$ to stay liquid through potential swings. Also sold a coffee contract - coffee is just too damn funny in how it behaves.

After this housekeeping and a nice market recovery, I'm back up to $40K in the account, with $20K in margin excess. Still probably not enough, but I think I will hold pat here for now. In an ideal world, you save cash for days like Thursday. Because all the grains got creamed - and promptly rebounded within a week. Great buying opportunity if you have cash - which I didn't. And most don't in this environment - so cash is truly king.

Kansas Farmer on Wheat, Corn

From Agora's 5 Minute Forecast:

“Wheat, arguably one of the most important human food crops worldwide, is suffering a double whammy: decreased production due to changing climate (droughts in Australia and the Ukraine, floods in Kansas -- we lost our entire wheat crop this year in south central Kansas due to excessive rain) -- and decreased production due to supplantation by corn.

“The second problem is water! Growing corn is a water-intensive process, and in western Kansas, it is necessary to employ massive pump irrigation to produce corn on farms that, in the past, have been able to produce wheat with dry land farming. Goodbye, aquifers!”

Entire article

Chris Mayer on Coal

From Agora's 5 Minute Update earlier this week:

“The U.S. market is the only one where coal prices are not at multiyear highs,” Chris Mayer reminded us in his latest agorafinancial.com “quick take.”

“U.S. coal companies are sucking wind right now,” writes Chris, queuing off of a recent WSJ story. “The only coal company to show any strength in its earnings was Consol, because it was able to sell its Northern Appalachia coal for higher prices.”

But the fragmented industry is ripe for consolidation, and at least in the next five-10 years, coal isn’t going away. “The coal biz looks crappy now,” says Chris, “but that’s often a good time to start building long-term positions.” An admitted history buff, one of Chris’ favorite contrarian energy players was the one-armed, brick-makin’, self-trained oil sleuth Pattillo Higgins.

Agora Financial

Ag Bull Market is Just Beginning

"If we were sitting at a bar enjoying a beer - a good beer - and I had to tell you only one reason why you should have money invested in the agricultural boom in some way, I think I would say this: Grain inventories are near all-time lows." - Chris Mayer

Rude Awakening Article

Weekly Positions Update - 8/12/07

Date	Position	Qty	Month/Yr	Contract	Strike	Call/Put	Entry Price	Last Price	Profit/Loss	Market Value
01/22/07	Long	1	DEC 08	Cotton			63.00	68.77	$2,885.00
04/16/07	Long	1	DEC 08	Cotton			64.50	68.77	$2,135.00
07/27/07	Long	1	DEC 07	Coffee 'C'			115.30	124.20	$3,337.50
06/19/07	Long	1	DEC 07	Coffee 'C'			120.50	124.20	$1,387.50
12/05/06	Long	1	DEC 07	Coffee 'C'			135.25	124.20	($4,143.75)
03/23/07	Long	1	SEP 08	KC Wheat			502	573	$3,550.00
11/03/06	Long	1	MAY 11	Natural Gas			6.450	7.3880	$9,380.00
03/29/07	Long	1	NOV 09	Soybeans			828	884	$2,800.00
08/11/06	Long	1	MAR 08	Sugar #11			14.50	9.83	($5,230.40)
06/04/07	Long	2	JUL 08	Sugar #11			10.05	10.00	($112.00)
08/01/07	Long	1	JUL 08	Sugar #11			10.48	10.00	($537.60)
10/18/06	Long	1	JUL 08	Sugar #11			12.08	10.00	($2,329.60)
03/20/07	Long	1	JUL 08	Wheat			488	569	$4,050.00
03/21/07	Long	1	JUL 08	Wheat			493	569	$3,800.00
Net Profit/Loss On Open Positions:									$20,971.65

Current Cash Balance	$28,489.20
Open Trade Equity	$20,971.65
Total Equity	$49,460.85
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$49,460.85

Cashed out: $5,000.00
Total value: $54,460.85

New "Cash Out" Strategy

Yesterday I started reading The New Market Wizards: Conversations with America's Top Traders by Jack D. Schwager. I'm just over 200 pages in - a very good read so far.

Something I've been thinking about is how I can continue to grow my account at a rapid pace while managing the risk of total obliteration. Awesome gains are possible in the futures market thanks to the amount of leverage you can use - but leverage works both ways. A bad trade can totally sink you if you are overleveraged.

One trader in the book started his first account with $12K and grew it to $250K over a four year period - only to then lose the entire balance in 4 days. This was a common theme in the book - great traders learning their lesson about leverage the hard way.

So my new strategy is to put away a set percentage of gains. For the near future, for every $15K in gains, I plan to put $5K away. This will leave me with $10K in gains to leave in the account and leverage as I like - while still having $5K in the bank to pay taxes with and save for a rainy day.

I am a strong believer in the commodity bull market, and I think it has at least another 10 solid years to run. So I want to make sure that I'm in the game for the next decade! As tempting as it is to leverage up as much as I can to make millions, I need to control this so that I am not wiped out by a sharp decline.

Weekly Positions Update - 8/06/07

Date	Position	Qty	Month/Yr	Contract	Strike	Call/Put	Entry Price	Last Price	Profit/Loss	Market Value
01/22/07	Long	1	DEC 08	Cotton			63.00	70.42	$3,710.00
04/16/07	Long	1	DEC 08	Cotton			64.50	70.42	$2,960.00
07/27/07	Long	1	DEC 07	Coffee 'C'			115.30	122.65	$2,756.25
06/19/07	Long	1	DEC 07	Coffee 'C'			120.50	122.65	$806.25
12/05/06	Long	1	DEC 07	Coffee 'C'			135.25	122.65	($4,725.00)
03/23/07	Long	1	SEP 08	KC Wheat			502	563	$3,050.00
11/03/06	Long	1	MAY 11	Natural Gas			6.450	7.4650	$10,150.00
03/29/07	Long	1	NOV 09	Soybeans			828	874	$2,300.00
08/11/06	Long	1	MAR 08	Sugar #11			14.50	10.12	($4,905.60)
06/04/07	Long	2	JUL 08	Sugar #11			10.05	10.28	$515.20
08/01/07	Long	1	JUL 08	Sugar #11			10.48	10.28	($224.00)
10/18/06	Long	1	JUL 08	Sugar #11			12.08	10.28	($2,016.00)
03/20/07	Long	1	JUL 08	Wheat			488	558 3/4	$3,537.50
03/21/07	Long	1	JUL 08	Wheat			493	558 3/4	$3,287.50
Net Profit/Loss On Open Positions:									$21,202.10

Current Cash Balance	$28,489.20
Open Trade Equity	$21,202.10
Total Equity	$49,691.30
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$49,691.30

Cashed out: $5,000.00
Total value: $54,691.30

Trade Alert - Bought More Sugar

I couldn't help it - I really think it's waiting to explode...

-----------------------------------   T R A D E S   C O N F I R M A T I O N S   ------------------------------------
THE FOLLOWING TRADES HAVE BEEN MADE THIS DAY FOR YOUR ACCOUNT AND RISK.
TRADE     MARKET     BUY      SELL   CONTRACT DESCRIPTION                       TRADE PRICE  CC   DEBIT/CREDIT
---------------------------------------------------------------------------------------------------------------------
01-AUG-07  NYBOT           1           JUL 08 SUGAR #11                              10.48     USD
TOTAL                      1           EX- 30-JUN-08
                                                                            Clearing         USD           2.00 DR
                                                                            Exchange         USD           4.13 DR
                                                                            NFA              USD           0.05 DR
                                                                            Brokerage        USD           2.13 DR
                                                                            Commission       USD           9.00 DR
                                                                 AVERAGE LONG      10.4800