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AGEC 420, Lec 271 AGEC 420 Markets, TradeSim April 4 – White Commercial, 5pm, WA 328 Soybean Crush Fundamental analysis Quiz.

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Presentation on theme: "AGEC 420, Lec 271 AGEC 420 Markets, TradeSim April 4 – White Commercial, 5pm, WA 328 Soybean Crush Fundamental analysis Quiz."— Presentation transcript:

1 AGEC 420, Lec 271 AGEC 420 Markets, TradeSim April 4 – White Commercial, 5pm, WA 328 Soybean Crush Fundamental analysis Quiz

2 AGEC 420, Lec 272 Open Position - Corn Bot 1 MidAm Dec 2.29¼, March 6 Close ? $ +/- Mon., Mar ½ -$47.50 CBOT: Cattle:

3 AGEC 420, Lec 273 Soybean Processors risk P beans  and/or P oil, P meal  Processor can lock in a margin by using a “spread hedge” (often called a “crush spread” or “putting on the crush”)

4 AGEC 420, Lec 274 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

5 AGEC 420, Lec 275 Crush Spread If you use 1:1:1 of Beans:Oil:Meal, are you adequately covered? NO What is the correct ratio? BeansOilMeal –See handout on ‘Soybean Crush’ – on webpage

6 AGEC 420, Lec 276 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)

7 AGEC 420, Lec 277 Soybeans US Production 1997/982001/02 Area (m ha): Yield (MT/ha): Prod (MMT): Export (MMT): Av. P ($/MT): [36.7 bu per MT]

8 AGEC 420, Lec 278 Soybeans World Production 1997/982001/02 United States 46%43% Brazil 20%24% Argentina 12%15% China 9%8% TOTAL (MMT)

9 AGEC 420, Lec 279 Soybean Trade US Exports 1997/982001/02 US Export (MMT): Exports/Prod %:32.3%35.3% % world exports:59%47% Importers:EU (35%), China (22%), Japan (8%)

10 AGEC 420, Lec 2710 Fundamental Analysis The use of information about supply, demand and other economic factors to forecast price.

11 AGEC 420, Lec 2711 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

12 AGEC 420, Lec 2712 Fundamental Analysis Is it useful or worthwhile for the small hedger or speculator? Purcell, Chapters 3 --> YES Malkiel, Chapters 5 and 7 --> NO

13 AGEC 420, Lec 2713 Fundamental Analysis - Livestock Long run: use both Supply and Demand information Short run: use only Supply information Cattle on Feed numbers Weights

14 AGEC 420, Lec 2714 Technical Analysis The use of historical market information on prices, price patterns, volume of trade etc to forecast future price movement

15 AGEC 420, Lec 2715 Technical Analysis Typically involves use of: a)Charts - patterns b) Other mathematical constructs - moving averages, relative strength index

16 AGEC 420, Lec 2716 Technical Analysis Is it worthwhile? Purcell, Chapters 4 and 5 --> YES Malkiel, Chapters 5 and 6 --> NO Example:


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