Document Type

Thesis - Open Access

Award Date

1982

Degree Name

Master of Science (MS)

Department

Economics

Abstract

The increased price volatility of the past decade has increased the importance of producer marketing strategies. With wide price ranges, producers now have more monetary incentive to attempt to store when prices are low, and incentive to attempt to sell when prices are high, than when price ranges were relatively narrow. Many farmers are seeking professional marketing advice, in attempts to improve their marketing information. A recent survey indicated that over 57 percent of farmers with sales over $100,000 subscribed to at least one market advisory service. This professional advice often includes technical analysis. However, from the producers' perspective, the benefits and gains, and the problems and drawbacks of charting, have not been adequately studied. Few studies have considered the implications of producers dealing with both the futures market and the cash market. This study deals with this important distinction. Despite a lack of evidence, farmers are paying to receive technical analysis. from experts. One farmer oriented, professional charting service implies that using their charts will improve one's trading proficiency by 10%-20%. Left unanswered is what benefit this is to a grain farmer who sells only two or three times per year. Other charting services make unsupported claims, too. One advertisement stated, "Oats are very nice to trade technically. This commodity always goes where it is projected to go--even if only for one trade. The purpose of the study was to evaluate the usefulness of technical analysis for farmers, not futures market speculators. A major objective of this study was to examine the cash market prices that would have been paid or received if cash transactions had been made when futures market price charts signaled to buy or sell. The short-run forecasting accuracy of price chart formations was also analyzed. A second major objective was to analyze the results of three producer marketing strategies which use technical analysis. The first strategy compared hedging for short periods, to selling in the cash market. The goal of this test was to find the effective annual interest rate that a producer could obtain by hedging under certain conditions. The second strategy tested was graphing of the basis with moving averages. As the basis changed, the moving averages changed, causing buy and sell signals. The objective of this test was to evaluate the prices paid and received from this strategy's signals, compared to the overall average price. The third strategy tested the usefulness of selective hedging. The objective was to evaluate the benefits and risks of selective hedging for producers.

Library of Congress Subject Headings

Hedging (Finance)
Commodity exchanges

Format

application/pdf

Number of Pages

145

Publisher

South Dakota State University

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