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AGEC 420. Markets, TradeSim April 4 – White Commercial, 5pm, WA 328 Soybean Crush Fundamental analysis Quiz. Open Position - Corn. Bot 1 MidAm Dec Corn @ 2.29¼, March 6 Close ? $ +/- Mon., Mar 28 2.24 ½ -$47.50 CBOT: http://www.cbot.com/

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Presentation Transcript
agec 420
AGEC 420
  • Markets, TradeSim
  • April 4 – White Commercial, 5pm, WA 328
  • Soybean Crush
  • Fundamental analysis
  • Quiz
open position corn
Open Position - Corn
  • Bot 1 MidAm Dec Corn @ 2.29¼, March 6

Close ?$ +/-

Mon., Mar 28 2.24 ½ -$47.50

CBOT: http://www.cbot.com/

Cattle: http://futures.tradingcharts.com/chart/LC/42

soybean processors risk
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”)

putting on the crush
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
crush spread
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
the crush spread
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)
soybeans
Soybeans

US Production

1997/98 2001/02

Area (m ha): 27.9 29.5

Yield (MT/ha): 2.62 2.66

Prod (MMT): 73.2 78.6

Export (MMT): 23.7 27.7

Av. P ($/MT): 230 153

[36.7 bu per MT]

soybeans1
Soybeans

World Production

1997/98 2001/02

United States 46% 43%

Brazil 20% 24%

Argentina 12% 15%

China 9% 8%

TOTAL (MMT) 158 184

soybean trade
Soybean Trade

US Exports

1997/98 2001/02

US Export (MMT): 23.7 27.7

Exports/Prod %: 32.3% 35.3%

% world exports: 59% 47%

Importers: EU (35%), China (22%), Japan (8%)

fundamental analysis
Fundamental Analysis

The use of information about supply, demand and other economic factors to forecast price.

fundamental analysis1
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
fundamental analysis2
Fundamental Analysis
  • Is it useful or worthwhile for the small hedger or speculator?

Purcell, Chapters 3 --> YES

Malkiel, Chapters 5 and 7 --> NO

fundamental analysis livestock
Fundamental Analysis - Livestock

Long run:

use both Supply and Demand information

Short run:

use only Supply information

Cattle on Feed numbers

Weights

technical analysis
Technical Analysis

The use of historical market information on prices, price patterns, volume of trade etc to forecast future price movement

technical analysis1
Technical Analysis

Typically involves use of:

  • Charts - patterns

b) Other mathematical constructs

- moving averages, relative strength index

technical analysis2
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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