Facilitator’s Notes – Forecasting
AgVentures
Grain Marketing
Facilitator’s Notes
Marketing Information and Price Forecasting/Strategies
TIME ALLOWED: 45-50 minutes
INTRODUCTION:
The given power point presentation contains several charts. You should be able to print some of the
charts or provide the entire power point presentation slides to the audience before you start.
In conjunction with the power point slides the following script will enable the facilitator to give
basic understanding about price forecasting techniques to the seminar or workshop participants.
The following are some suggestions that can aid the facilitator in presenting the material well.
1. Read the document on price forecasting techniques that is given in the grains curriculum.
2. Collect some supply and demand balance sheets for major commodities from
USDA/agencies web sites. Web address: www.usda.gov
3. Form the web sites download daily or weekly price charts for grains and distribute to the
audience before starting the session.
a. Web address: www.cbot.com or www.agdayta.com
b. You can get the commodity charts from several other sources (farm publications).
OBJECTIVE(S):
1. Why prices fluctuate: Demand and supply factors.
2. Understand about some basic price forecasting techniques using fundamental and technical
analysis.
3. Give some practice in price chart analysis using technical indicators.
INSTRUCTIONS:
Slide 1:
Start by asking: Why we need to forecast prices?
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The participants will come up with several good reasons such as to know the loss/profit potential of
a business, to make profits, to reduce the risk, to plan the business operations etc.,
Ask what kind of techniques they use to make these price forecasts if they are engaged in price
forecasting. Most of them will come up with chart analysis or USDA projections data.
State that all these methods given by the audience will fall under two broad heading in price
forecasting i.e. fundamental and technical analyses. Emphasize that these two methods are
complimentary. Mostly the fundamental analysis is useful to get long-term forecasts where as
technical analysis is useful to get short-term forecasts.
Slide 2:
Fundamental analysis looks into the supply and demand factors that influence the price. So the
analysts or one who is studying the markets should closely monitor these supply and demand factors.
Commodity production and use reports, seasonal patterns, prices of other goods (substitutes and
compliments) and changing structure of the commodity markets are closely studied by
fundamentalists.
Fundamental analysis often asks the question ‘where should the price be given economic
conditions?’
Slide 3:
By using the supply and demand theory we know that the markets are trying to reach the equilibrium
prices. So by studying these supply and demand factors one is trying to predict these likely
equilibrium levels. If the value of an asset is low compared to its expected price that asset will be
bought. Like wise if the value is high compared to the expected price that asset will be sold. These
actions will eventually restore the balance and the price will move towards equilibrium levels. This
is what the fundamental analysts are trying to find: the long-term equilibrium price.
Slide 4:
Because of constant changing of supply and demand factors it is hard to reach ‘the equilibrium
price’. It is like trying to hit a moving target. Buy low; sell high or Sell high; buy low – the arbitrage
principle is working in the markets. It is hard to asses the true value or price of an asset. Sometimes
the assets may be overvalued and sometimes undervalued. This is all due to changing demand and
supply factors.
Slide 5 & 6:
Ask the participants what are some demand side and supply side factors that influence the price of
their commodities. The facilitator should summarize the several points stated with the major shown
on the slides.
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Slide 7:
The approaches to fundamental analysis will vary from mere common sense or intuitive knowledge
about the commodity under study due to ones experience with the markets or sophisticated studies
that use several statistical techniques such as correlation and regression analyses.
Slide 8:
On this slide you can use the latest USDA corn balance sheet information. Explain here how an
analyst will use the USDA information to revise his estimates and come up with the price projections
(follow the discussion in the grain curriculum).
Slide 9:
Some other reports that are extensively followed by analysts to make price projections in the
respective markets are given here. The audience should be able access such kind of timely
information. They should have the timetable that gives the key dates of information release by the
USDA and its agencies.
Slide 10:
This slide gives the statistical relationship between the futures price and carryover stocks for corn.
Here the regression line was estimated which is given by the line in the picture. Fundamental
analysts use wide variety of statistical techniques to study the past relationships in the data and use
this information to make their projections.
Slide 11 & 12:
These two slides will use the relationship studied in the corn market and use that information to
make price projections. Explain these two slides by following the curriculum.
Here an important point to consider is that the past relationships may not prevail in a year of extreme
conditions (either supply or demand factors) or structural breaks due to policy changes etc,.
Slide 13:
Provide a summary of the fundamental approaches but emphasize that understanding the economic
conditions is vital for any kind of analysis.
Slide 14 & 15:
Fundamental analysis takes into consideration the market direction, momentum and psychology. It
tries to capture the short-term price variations and try to predict the direction the prices will take to
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reach the equilibrium price. These approaches are used mostly to time the entry and exit of the
market or to place orders etc,.
There are many technical analysts compared to fundamental analysts and they use variety of tools.
Here we will present the most common approaches.
Slide 16:
The most widely followed price formations and chart analysis techniques are given here.
Slide 17 & 18:
Bar charts: When explaining these charts follow the grain curriculum notes. You should provide
them with the latest charts that were downloaded by you which will heighten the attention of the
audience.
In using all the chart patterns the facilitator should provide explanation how to use them to project
the price in to the future.
Slide 19 & 20:
Trend lines: When explaining these lines follow the grain curriculum notes and present them with
the example. You should provide them with the latest commodity charts and ask them to come with
line of support and line of resistance.
Slide 21 & 22:
Consolidation planes: Explain what a consolidation plane means (follow the grain curriculum notes)
and present them with an example. You should provide them with the latest commodity charts and
ask them to come with consolidation plane or price channel.
Slide 23 & 24:
Key reversal: Explain what key reversal means (follow the grain curriculum notes) and show them
an example. You should provide them with the latest commodity charts and ask them to find any key
reversals that happened.
Slide 25& 26:
Gaps: Show the gaps in a chart and explain how the market participants will react to the days
following gaps in the price charts.
Slide 27& 28:
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Moving Averages: Define what a moving average is and explain how to use them (follow the grain
curriculum notes). Show them how a short term moving average when it cuts the long term moving
average from above and below will give the sell and buy signals. You can get these price charts with
moving averages plotted from several sources.
Slide 29:
Summarize the technical analysis. Mention that there are umpteen numbers of techniques that each
trader will follow. It is up to the individual to have faith in few and use them. You can develop your
own technical tool and keep it as proprietary.
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