TFM Perspective 02-11-2022


Signs of a Price Peak

Trying to outguess a top in the market is often referred to as trying to guess which way the wind will blow a week from now. No one really knows. The quest to be informed and attempt to sell grain or soybeans when prices may be peaking could potentially be accomplished with a few key indicators. In this Perspective, we’ll look at divergence of projected carryout and price trends, some technical signals, and common sense.

Fundamental analysis is the study of supply and demand. Many think fundamentals need to be monitored for market changing events. Technical analysis is the study of price charts. Technicians likely ignore fundamentals and concentrate on signals on price charts to make decisions. Technicians generally believe fundamentals are already factored into prices. If you produce or consume commodities, a knowledge of fundamental and technical analysis may help guide you to make more informed and confident buy and sell decisions.

The recent rally in the corn and soybean markets is mostly attributed to tightening world inventories, with less-than-ideal South American weather affecting supply.  Since weather affects production, fundamental analysis says that smaller supplies should lead to a willingness of consumers to pay higher prices. At some point, the market runs out of buyers.

A simple and effective guide to making decisions is to watch when carryout (what’s left when you subtract demand from supply) changes a direction in the trend. That is, if carryout is declining month to month, the shrinking supply has buyers on the offensive. While shrinking supplies then stabilize or grow, the market may be primed for a change in price direction. By using the trend of carryout, this process may be much easier than trying to outguess each line item on a supply and demand report. In essence, ending stocks are the summary of all combined elements of the report.

Technical analysis can often be helpful in the timing of making a buy or sell decision. When the trend of projected carryout changes, and a technical signal occurs suggesting it is time to act, this can be a powerful combination. Examples of technical signals are a bearish key reversal (at a top of a price trend) or a bullish key reversal (at the bottom of a price trend). Technical analysis can be very complicated. Still, many keep it simple and look for signals that stand out on charts and are visually easy to see. When everyone sees the same formation or signal, it may tend to become self-fulfilling. If a signal to sell or buy is in conjunction with a change in the trend of carryout, it could be that a change in the price trend is about to occur. In the case of an up-trending market, these signals would encourage you to act and make sales.  In a down-trending market, a chart reversal in conjunction with smaller projected carryout is the signal to buy. Common sense should also come into play. If prices are high and signals occur, then act.  When prices are low, buy.

As with any strategy, be sure you are aware of the risks involved before entering into any position.  Visit with a trusted advisor to help you determine what is best for your specific situation.

If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing:  800-334-9779.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.


Bryan Doherty

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