Grain harvest is winding down, and in some areas it is over. Now the priorities turn to spuds and beets along with fall work and looking at planting the fall crops. Also (because this is what I do) now is a great time to look at the markets and possibly make some adjustments in the grain marketing plan. Not just for the 2023-24 crop year but also the 2024-25 crop year.
Last month, we visited about the markets and analyzing them to see just why the market moved higher or lower, how much we feel that it could possibly move as well as just why the market moved. Did the cash prices move higher, for instance, because the futures moved higher, and if so, was the move a fundamentally driven move or a technical driven move? Or maybe even a combination of the two?
Now, the fundamental factors are somewhat easy to follow as this is simply a balance sheet. Is the trade increasing or decreasing the commodity stocks as well as ending stocks? What is the current supply/demand? The technical side of the market may take just a little more time to determine what is going to happen, or a better determination is in which direction the market has the potential to move.
There are a number of technical indicators for us to study and watch. You will need to study one or maybe two in order to decide how much time you want to devote to your study and then decide whether you want a short-term, fast-moving indicator or a slower-moving, longer-term one.
Let me give you an example of just one technical indicator. It is called the relative strength index (or RSI for short). When looking at this study, you and I really won’t need to know the mathematical equations that make up this study; we simply need to know the levels that give us the opportunity for strength in the futures or weakness in the same market.
Previous to writing this article, the RSI in Chicago wheat had reached a level of 30 (which tells us that the market has possibly run out of sellers and we could see some strength), and the futures did strengthen by about $1.50 per bushel reaching an RSI level of 90. (Any level above 70 gives the market an opportunity to correct and move lower.) The futures did correct and trade about $1.10 lower, reaching a level in the low 30s before finding support. Now, on the day I wrote this article, the Chicago wheat futures had rallied about a dollar per bushel higher with the RSI in the high 60s.
I feel it is important to say that the RSI isn’t an exact indicator of market movement; however, it is a very good indication for us to look at when deciding if now is a good time to pull the trigger and contract wheat. Or we might decide to give the market just a little time to see if we get some strength in the market. Depending on the level of the RSI, we might decide to move right now before a correction.
What it boils down to is that watching a technical study in the futures could very well give you an indication of when to contract or when to hold and you can feel good about your decision. I know it feels like I took a long time getting there, but the bottom line is this: Did I make my decision based on what I know, or did I make it on what I was forced to do because I had a payment due? I’m not putting anyone down by this statement because I know firsthand that there are times when we can only do what we can do. But the balance of the times we can make very good sound decisions based on what we see and know in the market. This also gives each of us the opportunity to take the emotional factor out of our marketing decisions.
Until next month, be sure to follow the fundamentals as well as a technical study or two, and when deciding what to do, don’t hesitate to ask your grain broker the level of … say the RSI. If they don’t know or they say that it doesn’t matter, well, maybe now would be a good time to look for someone else to help you in your marketing.
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