Transcript Fundamental Analysis

AGEC 420
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Markets, TradeSim
April 4 – White Commercial, 5pm, WA 328
Soybean Crush
Fundamental analysis
Quiz
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Open Position - Corn
• Bot 1 MidAm Dec Corn @ 2.29¼, March 6
Mon., Mar 28
Close ?
$ +/-
2.24 ½
-$47.50
CBOT: http://www.cbot.com/
Cattle: http://futures.tradingcharts.com/chart/LC/42
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Soybean Processors risk
Pbeans  and/or Poil, Pmeal 
• Processor can lock in a margin by using a
“spread hedge”
(often called a “crush spread” or “putting on the
crush”)
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Putting on the Crush
• The simultaneous purchase of soybean
futures and sale of soybean meal and
soybean oil futures
• to lock in the processing margin
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Crush Spread
• If you use 1:1:1 of Beans:Oil:Meal, are you
adequately covered? NO
• What is the correct ratio?
Beans
Oil
Meal
10
9
12
– See handout on ‘Soybean Crush’ – on webpage
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The Crush Spread
• Buy soybean futures and sell soybean meal and
soybean oil futures
– to lock in the processing margin
• or
– to bet on a reduction in margin (spec)
• Reverse Crush:
– A bet on a widening margin: (Sell beans, Buy
products)
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Soybeans
US Production
Area (m ha):
Yield (MT/ha):
Prod (MMT):
Export (MMT):
Av. P ($/MT):
1997/98
2001/02
27.9
2.62
73.2
23.7
230
29.5
2.66
78.6
27.7
153
[36.7 bu per MT]
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Soybeans
World Production
1997/98
United States
46%
Brazil
20%
Argentina
12%
China
9%
TOTAL (MMT) 158
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2001/02
43%
24%
15%
8%
184
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Soybean Trade
US Exports
US Export (MMT):
Exports/Prod %:
% world exports:
Importers:
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1997/98
2001/02
23.7
32.3%
59%
27.7
35.3%
47%
EU (35%), China (22%), Japan (8%)
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Fundamental Analysis
The use of information about supply, demand
and other economic factors to forecast price.
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Fundamental Analysis
Typically involves:
a) gathering info on supply and demand
• USDA reports, weather, political factors, substitutes
b) translating quantity information into a price
prediction
• regression analysis
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Fundamental Analysis
• Is it useful or worthwhile for the small
hedger or speculator?
Purcell, Chapters 3 --> YES
Malkiel, Chapters 5 and 7 --> NO
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Fundamental Analysis - Livestock
Long run:
use both Supply and Demand information
Short run:
use only Supply information
Cattle on Feed numbers
Weights
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Technical Analysis
The use of historical market information on
prices, price patterns, volume of trade etc to
forecast future price movement
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Technical Analysis
Typically involves use of:
a) Charts - patterns
b) Other mathematical constructs
- moving averages, relative strength index
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Technical Analysis
Is it worthwhile?
Purcell, Chapters 4 and 5 --> YES
Malkiel, Chapters 5 and 6 --> NO
Example: http://commoditytrader.net
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