Technical Analysis Is the Market's Language

Does the Market Tell Us What It thinks the Carryout Will Be? Yes.


The three most important factors in predicting corn, wheat, and bean prices are:


Carryout


Carryout


Carryout


The current carryout projection from USDA.


What the market thinks the carryout will be.


What you think the carryout will be.


When the US soybean carryout is less than a 30-day supply, bean futures will already or soon will be well above $10.


When the US corn carryout gets down to a 45-day supply, corn futures will go to $4.20 or higher.


When the US wheat carryout gets to a 150-day supply, wheat futures will go to $6.00.


Obviously, it is easy to know what the USDA thinks the carryout will be. Just look at the last USDA S&D issued every month on or about the 10th.


Obviously, you know what you think the carryout will be.


The huge problem is how do we know what the market thinks the carryout will be?


The yield potential of a corn crop can change very dramatically between the middle of May and the middle of July. Heck, one week in July can drastically change the carryover. USDA will not fully report that change for two to six months. With exceptionally dry weather in July, you will know the carryover is getting smaller, and you will have a much better idea of the carryover change than the USDA’s latest projection. If corn futures are going sharply higher, you know the market thinks the carryout is getting smaller, but how much smaller does the market expect? Where does the market think the high will be? How will we know when the market thinks the high has been made? A fundamental analyst (strictly supply & demand) can only guestimate what the market thinks the carryout will be.


Studies have shown that using the USDA carryout month-to-month to predict price is about 35% accurate. That leaves 65% of what the price range each year will be unknown until after the year is over. In all probability, your best pricing opportunity is long gone.


That 65% of unknown information is determined by what the market thinks the carryout will be. How can we get an objective handle on what the market thinks the carryout will be?


That, Ladies and Gentlemen, is the reason technical analysis was created thousands of years ago.


The market tells us what it thinks the carryout will be through technical analysis.


Technical analysis is the language through which the market talks to us. We must learn that language to understand what the market is freely telling us it thinks prices will do in the coming days, weeks, months, and even years.


I have become much more committed to learning the language of technical analysis since the wet 2019 crop year. I have concluded technical information is just as important, maybe more so, than fundamental analysis and the seasonal trend.


I highly recommend you learn simple technical analysis or follow someone who can effectively explain conclusions of their technical analysis. Most technical analysts-for-hire write an impressive summary, but no one knows what they are predicting. Do not waste your money on any analyst that presents a very impressive report, but you cannot easily understand what he recommending you do.


Yes, learning how to market grain effectively takes time. The most lacking skill of farmers, as a group, is the lack of understanding the language of the market, namely technical analysis.

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