The first question at the start of an Outlook Seminar in Southern Minnesota in mid-February was, “What's the difference between fundamental and technical analysis?” The answer was part of my seminar. I first look at fundamentals starting with a review of the weather, then the Global Supply-Demand tables for corn and soybeans, followed by the U.S. Supply-Demand tables, and the different acreage. I then usually provide technical analysis — a review of the Chicago Board of Trade (CBOT) monthly/weekly corn and soybean charts. This shows the long-term highs and lows, seasonal price patterns and long-term price cycles. After that I fine-tune the analysis using CBOT daily corn and soybean charts.
The next, more difficult question was, “Don't corn and soybean prices seem too high based on the current fundamentals?” My answer was “yes,” but the market is always right in the long term. However, prices can move too high or too low as trade perceptions of the market change and fund managers buy and sell.
These are the three key factors that I evaluate when looking at the different Supply-Demand fundamental scenarios listed above.
Watch when usage is greater than earlier projections for two months in a row or more.
Watch when ending stocks drop or increase for two consecutive months.
Expect sharply higher prices any time projected ending stocks drop below one month's usage.
These are three chart signals that I use in my technical analysis:
Watch when prices rally after a negative report or break after a bullish report, showing that all of the bearish or bullish news is built into the market.
After the market has been in an extended down move, watch for the first time that prices close below the two previous weeks' high to confirm an important low.
After any market has been in an extended up move, watch for the first time that prices close below the two previous weeks' low to confirm an important high.
No one can give a weather forecast with 100% accuracy. With small differences in yields creating wide swings in price, producers need to be disciplined scale-up sellers who use all the marketing tools available. Those who have purchased the right crop revenue insurance, year in and year out, seem to make better new-crop marketing decisions.
Alan Kluis is an independent commodity consultant. If you have marketing questions or want information, call: 612-670-1731 or e-mail: [email protected].
The table below provides three scenarios. The good scenario uses a good yield with slightly more acres than USDA predicts. The second scenario is the USDA prediction. The ethanol crush estimate of 3.545 billion bushels is on the high side of trade estimates.
The table showing the soybean scenarios again points out the small difference in yield and the huge difference in carry-over and prices. If acreage is up 2 million acres next year, than any yield below 38 bu./acre sets up an interesting market.
SOURCE: USDA/ALAN KLUIS PREDICTIONS