1. Agricultural Marketing
ECON 337:
Agricultural Marketing
Lee Schulz
Assistant Professor
Chad Hart
Associate Professor 1

2. Seasonal Patterns
A price pattern that repeats itself with some degree of accuracy year after year.
Supply and demand
Often sound reasons
Widely known
Linked to storage cost or basis patterns in grains
Linked to conception and gestation in livestock

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

4. Iowa – S. Minnesota Live Cattle Prices
Total All Grades, $/cwt
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Annual
2004
81.30
79.55
85.49
86.90
88.16
89.64
84.04
84.15
81.27
82.43
82.37
85.39
84.22
2005
88.36
87.48
92.37
91.92
89.03
83.09
79.66
80.11
83.83
86.61
89.16
92.84
87.04
2006
92.96
89.70
86.07
82.25
79.74
81.72
80.90
85.41
88.03
87.24
86.17
85.76
85.50
2007
87.30
90.17
96.90
98.69
96.28
88.02
89.07
91.45
92.46
89.98
91.21
91.03
91.88
2008
90.27
90.49
89.39
89.86
93.22
93.90
98.02
98.34
95.32
87.21
88.42
83.93
91.53
2009
83.15
80.31
81.79
87.55
85.26
81.61
82.39
82.06
81.52
80.71
81.85
81.54
82.48
2010
84.70
87.26
92.30
98.77
98.03
92.60
93.34
94.83
96.06
97.43
98.68
101.93
94.66
2011
105.63
108.04
117.94
119.89
111.74
109.60
112.52
113.83
116.54
120.11
125.20
124.57
115.47
2012
123.85
124.37
127.38
123.27
121.82
121.27
114.93
118.77
123.40
123.72
125.73
125.45
122.83
2013
125.24
124.30
126.00
127.17
126.42
122.20
121.19
123.97
123.76
128.55
130.68
131.69
125.93
Average
96.17
99.56
100.63
98.97
96.37
95.61
97.29
98.22
98.40
99.95
100.41
98.15
Ratio
98.1%
98.0%
101.4%
102.5%
100.8%
98.2%
97.4%
99.1%
100.1%
100.2%
101.8%
102.3%

5. Using Seasonal Index to Forecast
Observe price in time t1 P1
Forecast price in time t2 P2
Start with P1/ I1 = P2 / I2
Then P1 x I2 / I1 = P2
Assume that cattle are selling at $ /cwt in January. What is the forecast of July?
PJan x IJul / IJan = PJul
$ x / = $140.78

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

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

9. Estimated Returns to Finishing Yearling Steers
During the range in profits was -$ to $ per head
31.1% (68.9%) of the months profitable (unprofitable)
Months of
Percentage of Months with
Profit (Loss)
Month sold
Profit
Loss
January
27.3%
72.7%
Over $100 =
7.58%
February
9.1%
90.9%
$80.01 to $100
3.79%
March
45.5%
54.5%
$60.01 to $80
6.06%
April
$40.01 to $60
May
$20.01 to $40
June
36.4%
63.6%
$0.01 to $20
July
-$0.01 to -$20
11.36%
August
-$20.01 to -$40
5.30%
September
18.2%
81.8%
-$40.01 to -$60
9.85%
October
-$60.01 to -$80
6.82%
November
-$80.01 to -$100
December
Under-$100
28.79%

10. Dramatic Changes Have Taken Place

11. Estimated Returns to Farrow to Finish
During the range in profits was -$53.63 to $46.82 per head
55.3% (44.7%) of the months profitable (unprofitable)
Months of
Percentage of Months with
Profit (Loss)
Month sold
Profit
Loss
January
18.2%
81.8%
Over $25.00 =
21.2%
February
54.5%
45.5%
$20.01 to $25.00
5.3%
March
$15.01 to $20.00
3.0%
April
$10.01 to $15.00
11.4%
May
72.7%
27.3%
$5.01 to $10.00
6.8%
June
$0.01 to $5.00
7.6%
July
-$0.01 to -$5.00
August
-$5.01 to -$10.00
September
63.6%
36.4%
-$10.01 to -$15.00
8.3%
October
-$15.01 to -$20.00
3.8%
November
-$20.01 to -$25.00
December
Over -$25.00
16.7%

12. Seasonal Pricing Patterns
Source: USDA, NASS,
Monthly Price Data

13. Corn Pricing Patterns
Source: USDA, NASS,
Monthly Price Data

14. Soybean Pricing Patterns
Source: USDA, NASS,
Monthly Price Data

15. Charting
Channel lines

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

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

18. 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

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

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

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

22. Head & Shoulders Source: Figure 7, Charting Commodity Futures
Ag Decision Maker, File A2-20

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

24. Relative Strength Index
Looks at last X days worth of closing prices
X = 9, 14, 30, etc.
Summarizes upward and downward price movements during the period
Record the last 14 days worth of price changes, based on closing prices
Sum the positive and negative price changes and create average for each
Relative Strength Index =
(Up average/(Up average + Down average))*100

25. RSI for Nov Soybeans

26. 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

27. Does Technical Analysis Work?
Arguments for it:
Real world markets are not perfectly rational
Markets may be slow to respond to new information
Technical analysis works with the psychological biases
It works because so many people use it
Self-fulfilling
Arguments against:
Efficient market hypothesis
The current price holds all of the relevant information

28. Class web site: Have a great weekend!
Have a great weekend!