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Commodity markets are markets in which any
raw or primary products are exchanged or
traded. To be more speceific, Agricultural
Commodities (beans, wheat, corn, oats, ets)
are the comodities that drive the cost of feed.
This market can be difficult to understand and
follow, even for the experts. To follow the
markets, one must first understand some of the
terminology used in them.
Bear market
- A
market condition
in which the prices
of securities are
falling, and
widespread
cynicism causes
the negative
sentiment to be
self-sustaining. As
investors
anticipate losses in
a bear market and
selling continues, negativity only grows.
Bull Market
- A financial market of a group
of securities in which prices are rising or are
expected to rise
Cash price
– Price at which commodities can
be sold for at the current time.
Future Price
– price at which a commodity
can be purchased at some point in the future.
Carry
– Difference between the cash price and
the futures price
Hedge
- The sale or puchase of a futures
contract to offset the purchase or sale of an
underlying cash comodity in order to protect
against adverse price moves.
Open
– price at which the market opens.
Close
– price at which the cash market closes.
Settle
– official price at which the futures
market closes.
Limit
– maximum (or minimum) daily price
change allowed above or below the previous
close.
Once the basic lingo is understood, one can
begin to follow the markets. However, there is
a big difference from followng the market to
understanding it. To understand the market, it
is important to understand the factors that
drive it.
Oil Prices and Ethanol Production
– As oil
prices go, so does ethenol production. Ethanol
is produced from corn. Higher gas prices
mean higher margins
for ethanol
production. Ethanol
production will grow
as oil and gas prices
increase. In turn, the
supply of corn will be
reduced.
Weather
– A wet
spring or fall can lead
to planting or
harvesting concerns.
Drought can have an
obvious impact the
crop. Don’t forget to keep an eye on the
weather conditions in South Amercia.
Remember, our winter is their summer, and
South America’s crop can have a huge impact
on comodity prices.
National Disasters
– In May of 2011 the
Missiisspii River flooded, takeing with it tens
of thousands of acres of crop land. Farmers
are estimated to loose two billion dollars in
revenue. This will take crucial products out of
an already stressed market. Pay attention to
these things as they occur in an attempt to stay
ahead of the market.
Crop Reports
– Crop reports are nothing
more than updates on how things are going
througout the season. They have a tenancy to
drive the market, immediately before and after
they are released. Crop reports give you a
progress report on the current crop and they
can change from report to report. These
reports can be a valuable tool when trying to
determine what the furutre will bring.
Stock Market
– When the stock market is
bad, investors may try and make money in the
comodities market instead. This may drive
prices up or down, but is not based on any
“real” factors. It can cause big swings in the
market, but generally they are not sustainable.
International Influence
– The comodity
market is very much a world market. China is
home to over one billion people. As Nations
become more industrialized, their need to
import corn will grow. Disasters such the the
earquatke in Japan will also cause demand to
increase. Keep an eye on what is happening
globally and try and get a feel for what world
demand will be.
All the above factors have something in
comon. They are all related to supply and
demand. Supply and demand drives the
market prices up and down. Trying to figure
out where the prices are trending requires one
to examine all the factors that play a role in
supply and demand. Rarely will one factor
alone drive prices, but a combination of them.
Therein lies the key to projecting how prices
will trend.
There are several sources that can be
tapped to gain this critical information.
1. Watch local commentary on the markets.
Local stations usually have daily updates.
2. Read the agricultural section of the
newspaper.
3. Subscribe to magazines such as Progressive
Farmer or Corn and Soybean Digest.
4. Talk to local farmers – it’s their
livelihood…expert consultants are never a
bad idea.
5. Sign up to receive daily market updates via
e mail at farmfutures.com
6. Farm Futures radio is a free service on
farmfutures.com that offers expert analysis
of the market.
7. Get up to the date market prices at
cmegroup.com. Also offers graphs on price
trends.
Given the fact that feed prices fluctuate with
the markets, understanding the market is
critical when making decisions about feed.
Don’t rely on luck or someone else’s opinion.
Judge for yourself and make your own
decisions. Flying blind in today’s market is a
risk than no-one should be taking.
Navigating The Commodity Market
•
Chris Theisen -
800.345.8348 ¥
www.pheasant.com
7
Chris Theisen
Production Manager
CORN