Falling back on grain market’s technical analysis

Missing USDA reports because of government shutdown

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One of the side effects of the current government shutdown is that we are missing much of our fundamental information in the market. Uncle Sam provides us with regular bits of data that figure closely in the market job of price discovery.

“Price discovery,” it should be said, is what we call the actions on the commodity futures markets. The concept is that, we are not trading a commodity from different viewpoints as much as discovering what the current or future price should be of a commodity.

As much as some people think they know about the markets and price direction, the only real definable knowledge is that of what the price actually is.

As one of my friends used to say, the only way to find out the value of cash grain is to buy or sell it. You find that someone is eager to buy, or willing to buy, or may be convinced to buy, or is not willing to buy. Somewhere in there is the fair price of the commodity. It is the same in the electronic pits of Chicago or Kansas City.

Predicting what prices should be is another matter. Our government tracks data that helps us determine what grain is in the country, what is being exported, what we think we will produce, and what we will use. Analysts compare that to previous years’ production and usage and prices to develop theories about what prices should be.

Using actual, real bushels of grain to predict price is called “fundamental” analysis.

Current politics have determined that we are now in what some call a “government shutdown.” That it is not actually a shutdown for the three-fourths of the agencies that are already funded is glossed over by pundits, depending upon who they want to blame for this failure of Congress to do its job.

Unfortunately for us in the business of agriculture, the Agriculture Department is one of the unfunded agencies. So, the January “inventory” reports have been indefinitely delayed.

We get reports of actual exports since those who report them are considered essential, even if unpaid. They get to work for a delayed paycheck. What we do not get are actual reports of the accumulated exports so that we can see if we are on-pace with projections or not.

So, we are a little in the dark as we seek price discovery. That causes us to fall back more on “technical analysis.” A major part of this is the study of historical price charts to predict future prices. Unfortunately, chart study has a lot in common with stirring chicken entrails.

Start by going to the web page of any elevator or consulting group. They will offer you a commodity price page, which is usually generated for a fee by DTN. It will be a 10-minute delay, and is the reason that there are no longer very many DTN satellite dishes in front of farmer offices. Most of the information is paid for by the elevator and available on their web site.

At the end of the quote line are two boxes. One represents a chart, and one, and options table. Click on the chart, and you can start stirring the entrails.

At first glance, you will see a simple bar chart. Hold your cursor on any vertical bar and the date, open, high, low, close, and change will be displayed. Print the chart and study patterns.

The current December corn futures chart is a good start. Draw a line connecting the last four highs, and you have a line that is slightly descending. Draw a line that tried to connect the lows, starting with Sept. 18, and you get a line that slants upward. At a point in the near future, the lines intersect, and any trading will be outside the lines.

Then comes the analysis — the lines form a pennant. The prices will breakout to the top or the bottom. Find a reason to predict which.

Serious traders draw candlestick charts, or add analysis lines from stochastic or gsi studies. The more they do, the more the charts resemble chicken entrails and the more they learn from them.

Since all technical analysts are looking at the same numbers, there is often consensus about price direction. The more traders look at the same chart, the more the conclusions become self-fulfilling.

This is a slightly cynical view of the results, but I am a slightly cynical person.

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