Most farmers don’t look at the charts when making their marketing
decisions.
But they should, say market analysts.
“A little bit of effort in this way can go a long way,” said Mike
Jubinville of Pro Farmer Canada in Winnipeg.
“It gives you more confidence in making the marketing decisions they
have to make through the year, as opposed to just calling four
elevators and taking the best price being offered that day.”
Charts are simply the plotted fluctuations of futures prices of a
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commodity over a period of the contract’s life.
Technical or chart analysis is different from fundamental analysis. The
latter relies on judging the supply and demand for a product, and then
forecasting what that means for prices in the future.
Technical analysis is not directly linked to the underlying supply and
demand, but is based on observed patterns in the commodity markets.
Prices regularly rise and fall in the markets even when there has been
no change in supply and demand.
Commodity markets follow their own patterns and can be understood,
analysts say. If there aren’t big changes in supply and demand,
technical analysis can tell farmers when prices are above or below
average. For a farmer wanting to beat the average, or avoid below
average prices, this is knowledge that can make money.
Statcom canola analyst Nolita Clyde in Winnipeg said she doesn’t think
most farmers should base their overall strategy on technical signals.
The best strategy usually is to set up a marketing plan in which sales
are made at different times of the year.
But the exact timing of sales should vary, based on an analysis of the
charts.
“Using technicals can help you decide whether you want to price
something today, or if perhaps tomorrow or Friday may be a better day,”
said Clyde.
“I wouldn’t suggest anyone trying to pick tops or bottoms, but you can
get a good idea if you’re on an up-trend or a down-trend based on
technicals.”
Clyde said anyone trying to understand price behaviour on the Winnipeg
Commodity Exchange needs to understand chart analysis, because
commodity funds are playing a bigger role there and they base most of
their decisions on technical price signals. That is the prime influence
on overall price behaviour, until there is a change in supply or demand.
“If you really want a good feel for price direction, not knowing
technicals will put you at a disadvantage,” said Clyde.
Simple technical indicators include the 200, 50 and 10 day moving
averages. They allow the farmer to see how today’s prices rank against
recent prices and the general cycle of prices within a range.
Jubinville also watches the moving average convergence-divergence
rating.
Understanding the lines of resistance and support – in other words the
price range in which the commodity tends to trade – can indicate
whether prices are likely to fall or rise.
“Let the market tell you when it’s time to sell something. Charts give
us signals,” said Jubinville.
“They won’t tell you the highest point, but they’ll tell you selling
opportunities. You reward rallies with little incremental sales
throughout the year on those rallies. You don’t go selling into the
holes.”
Clyde agreed.
“If you’re not doing anything on technicals, you’re missing an
important part of the equation,” she said.
Most farmers know nothing about technical analysis. Few are comfortable
analyzing them. But producers shouldn’t be scared off.
“It isn’t hard concepts,” said Clyde.
“It’s trend lines. You don’t need to know all the mathematical
gibberish that goes behind the numbers. You just need to know the
implications.”
Producers trying to ease into an understanding of chart analysis can
follow the tried-and-true practice of finding a friend who does it and
learning from them.
If they are part of a marketing club, they can arrange to have a
teacher walk them through the basic concepts.
Provincial government agriculture departments often have materials
farmers can use and some contain lists of consultants who can help.
Jubinville said there are not many people like him, who farmers can
hire to help them set up a marketing program, but they can be found.
Using a marketing service like his can be a good start on building an
understanding of technical analysis.
But Jubinville suggested farmers find one approach they like and stick
to it, rather than jumping between various services and approaches,
since a number of strategies can all be sound and yet offer divergent
advice.
Clyde said producers looking to ease themselves into technical analysis
can practise following commodity market charts before basing actual
marketing decisions on them.
That way they’ll become familiar with what the charts look like and how
to read them before there’s money riding on their analysis.
