AGEC 420, Lec 351 Agec 420 Fundamental analysis –Regression –HW 8 Monday –Video on Options –Quiz

AGEC 420, Lec 352 Other technical systems Stochastic oscillators (%k and %d) Elliot wave theory Bollinger bands Andrew’s pitchfork Zig Zag indicator See

AGEC 420, Lec 353 Reasons to be cynical! 1. Futures is a zero sum game If buying is such a great idea -- who would sell? 2. Successful “strategies” -- should be secret Suggests that its more profitable to sell the strategy than to use it

AGEC 420, Lec 354 The disclaimer Past performance does not guarantee future results Should be … Past performance gives absolutely no indication of future results

AGEC 420, Lec 355 Remember the economics How is a price determined? –Supply and demand How is a future price determined? –Estimates of future supply and demand What causes a price to change ? –Changes in supply or demand What causes a future price to change ? –New estimates about future supply or demand – NEWS

AGEC 420, Lec 356 Reasons to be cynical (cont.) 3. The existence of repeating patterns does not mean they have predictive power. 4. Markets are for risk management/transfer –profits result from taking risk –or from having better information than the market

AGEC 420, Lec 357 Fundamental Analysis Using information about supply, demand and other economic factors to forecast price. i.e. What should the price be given what is known about supply and demand?

AGEC 420, Lec 358 Markets CBOT: CME:

AGEC 420, Lec 359 Fund. Analysis – how to.. a) Gather info on supply and demand USDA reports, weather, political/trade factors, i.e., data on quantities Domestic or World ?? b) translate quantity information into a price prediction use regression analysis to estimate relationships – then extrapolate

AGEC 420, Lec 3510 Market Information USDA Natl.Ag.Stat.Service (NASS) World Ag. Outlook Board (WAOB) Links are on the class website

AGEC 420, Lec 3511 Sample USDA Reports Weekly Mondays -- 10am, export inspections Ag Marketing Service (AMS) Thursdays -- 7:30am, export sales Foreign Ag Service (FAS) Monthly Cattle on feed Natl Ag Stat Service (NASS)

AGEC 420, Lec 3512 Cattle on Feed (7 state) Report today (Fri April 2pm Pre Report Estimates (agweb.com) Avg. GuessRange On feed (4/1)100.8% Placements Marketing – Note: numbers represent % of last year

AGEC 420, Lec 3513 Cattle on Feed Friday, Apr. 19 Actual vs. Pre-Report Estimates Avg. Est.RangeUSDA On feed (2/1)100.8% ??? Placements ??? Marketing – ???

AGEC 420, Lec 3514 Fund. Analysis – how to.. a) Gather info on supply and demand USDA reports, weather, political/trade factors, i.e., data on quantities Domestic or World ?? b) translate quantity information into a price prediction use regression analysis to estimate relationships – then extrapolate

AGEC 420, Lec 3515 Stock/Use Ratio Commonly used variable in price prediction for grains = ending stocks / total use (projected)

AGEC 420, Lec 3516 Ending stocks Ending stock = Beginning stock + Production + Imports – Domestic use – Exports

AGEC 420, Lec 3517 Stock/Use Ratio = Ending Stock / (Domestic Use + Exports) See data for HW 8

AGEC 420, Lec 3518 Fund. Analysis – how to.. a) Gather info on supply and demand USDA reports, weather, political/trade factors, i.e., data on quantities Domestic or World ?? b) translate quantity information into a price prediction use regression analysis to estimate relationships – then extrapolate

AGEC 420, Lec 3519 Simple regression model This equation represents the relationship between Price and the Stock/Use ratio Price = A + B * (Ending Stock / Use) Regression analysis is used to estimate the values for A and B in this equation

AGEC 420, Lec 3520 b) Use regression analysis to estimate A and B If A = 4.25 and B = then your price forecasting model is: Price = 4.25 – 0.03 * (Ending Stock / Use) c) Find the Stock/Use estimate for the current year, plug it into your model, and you obtain a price prediction. Steps in Fundamental Analysis