Market Analysis

Understanding Market AnalysisIf you decide not to use a consultant or advisory service, you will need to be able to do your own grain market analysis. It does not have to be complicated. However, a basic understanding of fundamental, seasonal, and technical analysis is necessary.

Fundamental analysis is the foundation of your marketing plan. You need to know whether stocks are tight or abundant on a historical basis. This can be done by comparing ending stocks-to-usage as a percentage. For instance, if ending stocks of corn are 1.1 BB and usage is 13.4 BB, stocks-to-usage are 8.2 percent. However, this figure is of little value unless it can be compared to a historical benchmark, such as the past twenty years. Are stocks-to-usage in the upper, mid or lower third of the twenty-year range? This information should be gathered for the U.S. as well as the world crop. This will enable you to determine whether there is an over or undersupply of grain.

Understanding Market Analysis

Technical analysis is necessary to determine when to make sales. It can be as simple as drawing a trend line between two points and selling a portion of the crop when the uptrend is broken. My preference is Elliot Wave analysis because of the ability to make price projections. However, this is a more complicated method of forecasting and should be used with other technical tools. In order to determine when a market is overbought, a momentum indicator, such as relative strength or stochastics can be used. There are others, but these are the most common. I also like to use a trend indicator, such as the MACD to determine whether the price trend is strong, or not. The combination of a good momentum and trend indicator should be the basics in your marketing toolbox.