There are two types of traders of any commodity or asset: speculators and hedgers. These may divide into various subtypes, but the general categories remain, as do their approaches to a market.
There also are two types of trading motivators available to both types of traders. For commodity markets, these focus on fundamental aspects of a related cash market that determine supply and demand or on technical factors related to price movement over time.
FUNDAMENTAL MOVEMENT
Fundamental market movers relate mostly to production and supply since it’s easier to measure supply and commodity movement in and out of the country’s total.
Demand indicators also are there, and consumption, that is amount purchased and removed from total supply is easier to measure than actual “demand.” Consumers might be willing to spend more for a particular commodity, but their ability to pay might be hindered.
For grain and oilseed markets, there is a plethora of information related to production, US and worldwide, from the US Department of Agriculture and from various news sources. There also is ample information about use and exports. This is one reason traders subscribe to various news services.
For livestock markets, there is less information available, but these markets have their own lists and nuances.
CHARTS AND STUDIES
Investopedia has an article called Commodity Investing: Top Technical Indicators that lays out some of the more popular price chart analysis techniques used. Space wouldn’t permit the authors to list them all.
However, Investopedia boiled it down to say that momentum indicators were the most popular for commodity trading. “Momentum indicators are further split into oscillators and trend-following indicators,” the article said.
One of the simplest indicators is the moving average, which is the average price over a specified period, like a 10-day moving average is the average settlement price over the last 10 days plotted on a daily price bar chart.
Buy signals are generated when the price crosses, or closes, above the designated moving average, while sell signals come when they cross below the moving average
There are variations to moving average studies like Moving Average Convergence Divergence, or MACD. It’s a trend-following momentum indicator that uses moving averages or exponential moving averages.
The MACD is bullish when the shorter moving average is higher than the longer and bearish when the opposite is true. By watching how much the moving averages diverge, traders can tell if trend momentum is increasing or decreasing.
The Relative Strength Index is similar to the MACD but attempts to reveal overbought or oversold conditions in a market. If the index is higher than 70, the market is thought to be overbought and oversold if the index is less than 30.
Time and space do not allow for discussions of other popular technical indicators, but it might pay to do a Google search.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $173.76 per cwt to $174.38, compared with last week’s range of $171.19 to $174.19 per cwt. FOB dressed steers, and heifers went for $269.82 per cwt to $270.63, compared with $267.22 to $271.38.
The USDA choice cutout Tuesday was down $5.37 per cwt at $284.34 while select was down $1.47 at $258.86. The choice/select spread narrowed to $25.48 from $29.38 with 106 loads of fabricated product and 33 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.25 to $1.35 a bushel over the Mar corn contract, which settled at $4.63 3/4 a bushel, down $0.07 1/2.
The CME Feeder Cattle Index for the seven days ended Monday was $228.19 per cwt, up $0.18. This compares with Tuesday’s Jan contract settlement of $225.42, up $3.12.