DTN Six Factors: Price, Probability or Value in Commodity Markets

To understand a commodity market, we have to start with a basic understanding of the two main players involved: the producers and the end users. Because the market needs both players to function over time, prices in a healthy, balanced market rotate up and down, distributing advantages back and forth. The Price Probability of these swings within periods of time is a simple representation of commodity’s value. Commercials The second of the DTN Six Factors that relates to a commodity’s value comes from commercial net holdings in CFTC’s weekly Commitment of Traders reports. Commercials are in the business of handling grain. Firms like Cargill, ADM, Bunge, ethanol plants, etc. report their large futures positions weekly and we can generally see if this group is net long or net short. In my experience, commercial firms know more about demand than anybody. It pays to notice their positions. When commercials go net long on the futures board, it is often a sign of active demand from end users. Seasonals I’ve seen countless trading approaches come and go, but there is one consistent market phenomenon for cash corn and soybean prices, and it has earned its place on the DTN factors list: Seasonal trends.  Over the past 50 years, corn and soybeans typically trade near the lowest prices in early October and near their highest prices in early June for corn and late June for soybeans. Yes, there are exceptions, but statistically speaking, this pattern is extremely helpful in the most confusing of…

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