Ag Marketing & Prices Exam 2

Fundamental Analysis

Studying supply and demand factors to understand why prices change

Technical Analysis

Studying price patterns, volume, and open interest to help predict price movements

Candlestick Chart

Shows the opening price, closing price, high, and low

Volume

The number of contracts traded

Open Interest

The number of futures contracts that are still open

Uptrend

A pattern of higher highs and higher lows

Downtrend

A pattern of lower highs and lower lows

Sideways Market

Prices move within a range without a clear trend

Support

A price area where buying may prevent prices from falling further. Usually based on previous highs.

Resistance

A price area where selling may prevent prices from rising further. Usually based on previous highs.

Trendline

A line drawn using price highs or lows to show the direction of a trend

Role Reversal

When old resistance becomes support or old support becomes resistance

Bullish Key Reversal

In a downward trend, price makes a new low but closes above the previous days close

Bearish Key Reversal

In an uptrend, price makes a new high but closes below the previous days close

Bullish Hook Reversal

In a downtrend, price makes a lower high and lower low but closes above the previous days close

Bearish Hook Reversal

In an uptrend, price makes a higher high and higher low but closes below the previous days close

Double top

Possible price decline. A pattern with two similar peaks. Confirmed when price closes below middle trough.

Double Bottom

A pattern with two similar lows. Confirmed when price closes above the middle peak.

Head-and-Shoulders Top

Bearish; Three peaks with the middle peak highest. Usually signals a possible downward reversal.

Inverse Head-and-Shoulders

Bullish; Three lows with the middle low deepest. Usually signals a possible upward reversal.

Breakaway gap

Occurs at the beginning of a new move

Exhaustion gap

Occurs near the end of a major move

Moving averages

Short-term average crossing above a long-term average = buy signal; crossing below = sell signal.

Fibonacci retracements

Common levels are 38.2%, 50%, and 61.8%.

Bollinger Bands

above the upper band = sell signal; below the lower band = buy signal.

Confluence

Multiple signals support the same prediction.

Supply

How much sellers are willing and able to sell at different prices.

Demand

How much buyers are willing and able to buy at different prices.

Quantity supplied/demanded changes

Movement along the curve because of a change in the product's own price.

Supply/demand changes

The entire curve shifts because of another factor.

Right shift

Increase

Left shift

Decrease

Equilibrium

Where supply and demand intersect

Price taker

Individual farmer who accepts the market price

Derived demand

Farm level demand comes from demand for the final product

Substitutes

Beef and pork; one can replace the other

Complements

Goods used together

Price elasticity

How much quantity responds to a price change

Inelastic

Quantity changes very little when price changes

Total revenue

Price x Quantity

With inelastic demand

A price decrease causes total revenue to decrease

Price floor above equilibrium

Creates a surplus

Price ceiling below equilibrium

Creates a shortage

Carrying charge

Difference between futures prices for different delivery months.

Carry market (contango)

Deferred futures price is higher than nearby futures price. Grain may be worth storing.

Inverted market (backwardation)

Nearby futures price is higher than deferred futures price. Selling sooner may be better.

Full carry

The cost of storing grain, including physical storage and interest.