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Corn+Soybean Digest

Fundamentals Vs. Technical Analysis

The first question at the start of an Outlook Seminar in Southern Minnesota in mid-February was, “What's the difference between fundamental and technical analysis?” The answer was part of my seminar. I first look at fundamentals starting with a review of the weather, then the Global Supply-Demand tables for corn and soybeans, followed by the U.S. Supply-Demand tables, and the different acreage. I then usually provide technical analysis — a review of the Chicago Board of Trade (CBOT) monthly/weekly corn and soybean charts. This shows the long-term highs and lows, seasonal price patterns and long-term price cycles. After that I fine-tune the analysis using CBOT daily corn and soybean charts.

The next, more difficult question was, “Don't corn and soybean prices seem too high based on the current fundamentals?” My answer was “yes,” but the market is always right in the long term. However, prices can move too high or too low as trade perceptions of the market change and fund managers buy and sell.

These are the three key factors that I evaluate when looking at the different Supply-Demand fundamental scenarios listed above.

  1. Watch when usage is greater than earlier projections for two months in a row or more.

  2. Watch when ending stocks drop or increase for two consecutive months.

  3. Expect sharply higher prices any time projected ending stocks drop below one month's usage.

These are three chart signals that I use in my technical analysis:

  1. Watch when prices rally after a negative report or break after a bullish report, showing that all of the bearish or bullish news is built into the market.

  2. After the market has been in an extended down move, watch for the first time that prices close below the two previous weeks' high to confirm an important low.

  3. After any market has been in an extended up move, watch for the first time that prices close below the two previous weeks' low to confirm an important high.

No one can give a weather forecast with 100% accuracy. With small differences in yields creating wide swings in price, producers need to be disciplined scale-up sellers who use all the marketing tools available. Those who have purchased the right crop revenue insurance, year in and year out, seem to make better new-crop marketing decisions.

Alan Kluis is an independent commodity consultant. If you have marketing questions or want information, call: 612-670-1731 or e-mail: [email protected].

Corn Analysis:

The table below provides three scenarios. The good scenario uses a good yield with slightly more acres than USDA predicts. The second scenario is the USDA prediction. The ethanol crush estimate of 3.545 billion bushels is on the high side of trade estimates.

2006 Corn Crop Outlook
Scenario Good USDA Poor
Carry-in 2,401 2,401 2,401
Planted acres 81.5 80.5 79.5
Harvested 74.0 73.2 71.6
Yield 154 147.7 135
Production 11,396 10,810 9,659
Imports 10 10 10
Total Supply 13,807 13,221 12,070
Feed 5,950 5,950 5,950
Crush/Mill 3,295 3,545 3,545
Exports 2,000 2,000 2,000
Total Use 11,245 11,495 11,295
Carryout 2,562 1,726 775
Stocks/Use 22.8% 15% 6.9%

Soybean Analysis:

The table showing the soybean scenarios again points out the small difference in yield and the huge difference in carry-over and prices. If acreage is up 2 million acres next year, than any yield below 38 bu./acre sets up an interesting market.

2006 Soybean Crop Outlook
Scenario Good USDA Poor
Carry-in 555 555 555
Planted Acres 76.0 74.0 72.0
Harvested 74.4 72.9 70.6
Yield 43 40.7 36
Production 3,199 2,967 2,542
Imports 4 4 4
Total Supply 3,758 3,526 3,101
Crush/Mill 1,730 1,730 1,730
Seed/Other 150 159 150
Exports 1,125 1,075 1,025
Total Use 3,005 2,964 2,905
Carryout 753 562 196
Stocks/Use 25.1% 19% 6.7%


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