ECON 337 Agricultural Marketing Chad Hart Associate Professor

ECON 337: Agricultural Marketing Chad Hart Associate Professor chart@iastate. edu 515 -294 -9911

Seasonal Patterns Ø A price pattern that repeats itself with some degree of accuracy year after year. ØSupply and demand ØOften sound reasons ØWidely known ØLinked to storage cost or basis patterns in grains ØLinked to conception and gestation in livestock

How to Calculate Seasonal Index Ø Pick time period (number of years) Ø Pick season period (month, quarter) Ø Calculate average price for season Ø Calculate average price over time Ø Divide season average by over time average price x 100

Iowa – S. Minnesota Live Cattle Prices Total All Grades, $/cwt 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Jan 81. 30 88. 36 92. 96 87. 30 90. 27 83. 15 84. 70 105. 63 123. 85 125. 24 Feb 79. 55 87. 48 89. 70 90. 17 90. 49 80. 31 87. 26 108. 04 124. 37 124. 30 Mar 85. 49 92. 37 86. 07 96. 90 89. 39 81. 79 92. 30 117. 94 127. 38 126. 00 Apr 86. 90 91. 92 82. 25 98. 69 89. 86 87. 55 98. 77 119. 89 123. 27 127. 17 May 88. 16 89. 03 79. 74 96. 28 93. 22 85. 26 98. 03 111. 74 121. 82 126. 42 Jun 89. 64 83. 09 81. 72 88. 02 93. 90 81. 61 92. 60 109. 60 121. 27 122. 20 Jul 84. 04 79. 66 80. 90 89. 07 98. 02 82. 39 93. 34 112. 52 114. 93 121. 19 Aug 84. 15 80. 11 85. 41 91. 45 98. 34 82. 06 94. 83 113. 83 118. 77 123. 97 Sep 81. 27 83. 83 88. 03 92. 46 95. 32 81. 52 96. 06 116. 54 123. 40 123. 76 Oct 82. 43 86. 61 87. 24 89. 98 87. 21 80. 71 97. 43 120. 11 123. 72 128. 55 Nov 82. 37 89. 16 86. 17 91. 21 88. 42 81. 85 98. 68 125. 20 125. 73 130. 68 Dec Annual 85. 39 84. 22 92. 84 87. 04 85. 76 85. 50 91. 03 91. 88 83. 93 91. 53 81. 54 82. 48 101. 93 94. 66 124. 57 115. 47 125. 45 122. 83 131. 69 125. 93 Average Ratio 96. 28 98. 1% 96. 17 99. 56 100. 63 98. 97 96. 37 98. 0% 101. 4% 102. 5% 100. 8% 98. 2% 95. 61 97. 4% 97. 29 98. 22 98. 40 99. 95 100. 41 99. 1% 100. 2% 101. 8% 102. 3% 98. 15

Using Seasonal Index to Forecast Ø Observe price in time t 1 Ø Forecast price in time t 2 P 1 P 2 Ø Start with P 1/ I 1 = P 2 / I 2 Ø Then P 1 x I 2 / I 1 = P 2 Ø Assume that cattle are selling at $141. 61 /cwt in January. What is the forecast of July? PJan x IJul / IJan = PJul $141. 61 x 0. 974 / 0. 981 = $140. 78

Livestock Marketing Information Center Data Source: USDA-AMS, Compiled & Analysis by LMIC

Livestock Marketing Information Center Data Source: USDA-AMS, Compiled & Analysis by LMIC

Estimated Returns to Finishing Yearling Steers • During 2003 -2013 the range in profits was -$306. 51 to $377. 94 per head – 31. 1% (68. 9%) of the months profitable (unprofitable) Month sold January February March April May June July August September October November December Months of Profit Loss 27. 3% 72. 7% 9. 1% 90. 9% 45. 5% 54. 5% 45. 5% 36. 4% 63. 6% 27. 3% 72. 7% 18. 2% 81. 8% 27. 3% 72. 7% Percentage of Months with Profit (Loss) Over $100 = 7. 58% $80. 01 to $100 = 3. 79% $60. 01 to $80 = 6. 06% $40. 01 to $60 = 6. 06% $20. 01 to $40 = 3. 79% $0. 01 to $20 = 3. 79% -$0. 01 to -$20 = 11. 36% -$20. 01 to -$40 = 5. 30% -$40. 01 to -$60 = 9. 85% -$60. 01 to -$80 = 6. 82% -$80. 01 to -$100 = 6. 82% Under-$100 = 28. 79%

Dramatic Changes Have Taken Place

Estimated Returns to Farrow to Finish • During 2003 -2013 the range in profits was -$53. 63 to $46. 82 per head – 55. 3% (44. 7%) of the months profitable (unprofitable) Month sold January February March April May June July August September October November December Months of Profit Loss 18. 2% 81. 8% 54. 5% 45. 5% 72. 7% 27. 3% 81. 8% 18. 2% 63. 6% 36. 4% 45. 5% 54. 5% 27. 3% 72. 7% Percentage of Months with Profit (Loss) Over $25. 00 = 21. 2% $20. 01 to $25. 00 = 5. 3% $15. 01 to $20. 00 = 3. 0% $10. 01 to $15. 00 = 11. 4% $5. 01 to $10. 00 = 6. 8% $0. 01 to $5. 00 = 7. 6% -$0. 01 to -$5. 00 = 6. 8% -$5. 01 to -$10. 00 = 5. 3% -$10. 01 to -$15. 00 = 8. 3% -$15. 01 to -$20. 00 = 3. 8% -$20. 01 to -$25. 00 = 3. 8% Over -$25. 00 = 16. 7%

Seasonal Pricing Patterns Source: USDA, NASS, Monthly Price Data 1980 -2013

Corn Pricing Patterns Source: USDA, NASS, Monthly Price Data 1980 -2013

Soybean Pricing Patterns Source: USDA, NASS, Monthly Price Data 1980 -2011

Charting Channel lines

Sell Signal A sell signal is one close below the charting lines Sell signal

Buy Signal Some chartists need only one close above the charting line to create a buy signal, others use two closes above. Buy signal

Resistance and Support Resistance level: A price level where the market seems to hit and bounce down Support level: A price level where the market seems to hit and bounce up

Key Reversal A key reversal is when the daily high and low price range exceed the price range for the previous two days.

Gaps often occur when a major new piece of information hits the market. They are often filled in by later price movements.

Double Tops & Bottoms Double tops and bottoms show prices with major technical resistance. These can be several days apart.

Head & Shoulders Source: Figure 7, Charting Commodity Futures Ag Decision Maker, File A 2 -20

Moving Averages 9 day average 18 day average 40 day average Sell signal Buy signals

Relative Strength Index ØLooks at last X days worth of closing prices ØX = 9, 14, 30, etc. ØSummarizes upward and downward price movements during the period ØRecord the last 14 days worth of price changes, based on closing prices ØSum the positive and negative price changes and create average for each ØRelative Strength Index = (Up average/(Up average + Down average))*100

RSI for Nov. 2014 Soybeans

Relative Strength Index RSI’s above 70 (80) are considered signals of a market due to decline RSI’s below 30 (20) are considered signals of a market due to rally

Does Technical Analysis Work? Arguments for it: ØReal world markets are not perfectly rational ØMarkets may be slow to respond to new information ØTechnical analysis works with the psychological biases ØIt works because so many people use it ØSelf-fulfilling Arguments against: ØEfficient market hypothesis ØThe current price holds all of the relevant information

Class web site: http: //www. econ. iastate. edu/~chart/Classes/econ 337/ Spring 2017/ Have a great weekend!