Melvin Brees
Farm Management Specialist
University of Missouri Extension




Decisive Marketing

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July 30, 1999

Starting Points for Market Decisions

The following factors can provide guidance for starting to build market plans.

Supply and Demand Fundamentals: They are often criticized and some believe they hurt the markets, but USDA supply and Demand Reports provide important supply and demand information you need to make decisions. Pay particular attention to projected ending stocks and expected prices. If stocks are growing, it means supply is exceeding demand which is negative for prices. Decreasing ending stocks would be positive for price outlook. USDA's projected prices are useful for setting price targets. If you make sales near the high end of their projected ranges, your chances of netting above average prices are improved. The August report will provide early clues for these factors.

Technical Factors: Technical analysis uses charts and price action to analyze markets. Corn prices have been in a downtrend for about three years and soybeans more than two years. Look for price signals suggesting changes in these trends. Technical analysts also identify support and resistance prices. These make good price targets for both upside price goals and downside "bail out" prices.

Price Levels: The actual prices themselves can provide clues for market strategies. If prices are in the top one-third of their historical price range, a good guide is to sell aggressively because prices usually don't stay high for very long. The best guide for the middle one-third range is to follow the trend. In the bottom one-third, you want to avoid sales because prices eventually recover from their lows. Prices have been in this range for some time and soybeans are near 27-year lows, expectations of when and how fast they may recover are important for fall marketing decisions.

Basis: Basis (difference between futures and cash price) is important in deciding how or when to make cash sales. If basis is weak (wide), it signals weak cash demand. In this case you want to avoid cash sales and use the futures market to protect prices. If basis is strong (narrow), you make cash sales and then re own "on paper" with futures or options if you want to speculate on higher prices. Basis can be "locked in" using basis contracts or forward cash contracts.

Carry: Market carry (difference between nearby and distant month futures) represents what the market is offering you to store. Comparing December and March futures prices, along with expected basis improvement, suggests the potential for storage returns. Market carry can be "locked in" using futures contracts or cash contracts for later delivery.

Your Own Situation: Your own cash flow needs, business goals, storage availability, market delivery points and the amount of risk that you are willing to bear along with your knowledge of or ability to use various market tools will also affect your market strategies.

Analyzing the above factors and market news that suggests changes is the place to start when making plans for fall and winter marketing strategies. -- Melvin

University of Missouri ExtensionDecisive Marketing - July 30, 1999 -- Revised: April 20, 2004