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