Agec 420

1
Agec 420

• Fundamental analysis
• Regression
• HW 8
• Monday
• Video on Options
• Quiz

2
Other technical systems

• Stochastic oscillators (k and d)
• Elliot wave theory
• Bollinger bands
• Andrews pitchfork
• Zig Zag indicator
• See www.equis.com/free/taaz/

3
Reasons to be cynical!

• 1. Futures is a zero sum game
• If buying is such a great idea -- who would sell?
• 2. Successful strategies -- should be secret
• Suggests that its more profitable to sell the
  strategy than to use it

4
The disclaimer

• Past performance does not guarantee future
  results
• Should be
• Past performance gives absolutely no indication
  of future results

5
Remember the economics

• How is a price determined?
• Supply and demand
• How is a future price determined?
• Estimates of future supply and demand
• What causes a price to change ?
• Changes in supply or demand
• What causes a future price to change ?
• New estimates about future supply or demand NEWS

6
Reasons to be cynical (cont.)

• 3. The existence of repeating patterns does not
  mean they have predictive power.
• 4. Markets are for risk management/transfer
• profits result from taking risk
• or from having better information than the market

7
Fundamental Analysis

• Using information about supply, demand and other
  economic factors to forecast price.
• i.e.
• What should the price be given what is known
  about supply and demand?

8
Markets

• CBOT http//www.cbot.com/
• CME http//www.cme.com/

9
Fund. Analysis how to ..

• a) Gather info on supply and demand
• USDA reports, weather, political/trade factors,
• i.e., data on quantities
• Domestic or World ??
• b) translate quantity information into a price
  prediction
• use regression analysis to estimate relationships
  then extrapolate

10
Market Information

• USDA
• Natl.Ag.Stat.Service (NASS)
• World Ag. Outlook Board (WAOB)
• Links are on the class website
• www.agecon.ksu.edu/jafox

11
Sample USDA Reports

• Weekly
• Mondays -- 10am, export inspections
• Ag Marketing Service (AMS)
• Thursdays -- 730am, export sales
• Foreign Ag Service (FAS)
• Monthly
• Cattle on feed
• Natl Ag Stat Service (NASS)

12
Cattle on Feed (7 state)

• Report today (Fri April 19) _at_ 2pm
• Pre Report Estimates (agweb.com)
• Avg. Guess Range
• On feed (4/1) 100.8 100.0 - 102.7
• Placements 108.6 102.2 - 117.6
• Marketing 96.6 95.1 100.6
• Note numbers represent of last year

13
Cattle on Feed

• Friday, Apr. 19
• Actual vs. Pre-Report Estimates
• Avg. Est. Range USDA
• On feed (2/1) 100.8 100.0-102.7 ???
• Placements 108.6 102.2-117.6 ???
• Marketing 96.6 95.1 100.6 ???

14
Fund. Analysis how to ..

• a) Gather info on supply and demand
• USDA reports, weather, political/trade factors,
• i.e., data on quantities
• Domestic or World ??
• b) translate quantity information into a price
  prediction
• use regression analysis to estimate relationships
  then extrapolate

15
Stock/Use Ratio

• Commonly used variable in price prediction for
  grains
• ending stocks / total use (projected)

16
Ending stocks

• Ending stock
• Beginning stock
• Production
• Imports
• Domestic use
• Exports

17
Stock/Use Ratio

• Ending Stock / (Domestic Use Exports)
• See data for HW 8

18
Fund. Analysis how to ..

• a) Gather info on supply and demand
• USDA reports, weather, political/trade factors,
• i.e., data on quantities
• Domestic or World ??
• b) translate quantity information into a price
  prediction
• use regression analysis to estimate relationships
  then extrapolate

19
Simple regression model

• This equation represents the relationship between
  Price and the Stock/Use ratio
• Price A B (Ending Stock / Use)
• Regression analysis is used to estimate the
  values for A and B in this equation

20
Steps in Fundamental Analysis

• b) Use regression analysis to estimate A and B
• If A 4.25 and B -0.03 then your price
  forecasting model is
• Price 4.25 0.03 (Ending Stock / Use)
• c) Find the Stock/Use estimate for the current
  year, plug it into your model, and you obtain a
  price prediction.