Are Your Tools Still Working?

Marketing grain successfully requires several processes, run simultaneously.

There is no place for subjectivity, bias, or people-pleasing in commodity market analysis. It’s mathematical science, where data models are deployed to gain insights into future market direction.

Last week, we talked about the value of technical analysis in discerning trends and price patterns on charts. It’s outperforming fundamental analysis in grain markets these days because the supply and demand model, and the data that goes into it, have gone lobsided in recent years.

How Fundamentals are Failing the Grain Trade Today

Here’s an example: back when there were 7-10 different export destination markets for Canadian canola, the risk that those human populations would stop eating fried food was very low. We never talked about it.

Today, biodiesel demand could disappear with the stroke of a pen, and there are some who would like to see that happen. To be clear, I’m not bearish, in part because unpredictable fundamental demand risks no longer inform my view to prices.

The corn market is equally vulnerable to a policy shift, and prices are already below that cost of production for most farms. Corn is a very expensive crop to grow, which in the past would have caused farmers to plant something else to protect equity, but there’s no longer much flexibility.

The infrastructure to move grain into export markets is more costly than it used to be due to rising rail rates and tariffs, reducing arbitrage opportunities. Market uncertainty is the biggest reason that traditional supply and demand analysis is failing.

Markets like rye, triticale and flax have already defied the price-production relationship by spiking without a matching increase in acres. In other words, ending stocks and relative profitability are no longer driving seeded acres.

Sadly, some grain producers now make decisions based on non-numerical myths like ‘I have to grow canola,’ ‘friends don’t let friends plant flax,’ and ‘there’s no market for specialty crops.’ There’s no accounting for the predominance of simple rotations and producers who feel backed into a corner.

Making Sense of the Alternative

If I was still working as a commodity grain advisor, technical analysis is the only thing I’d pay money for and attention to right now. It takes study and practice to get the hang of it, but eventually, the lingo becomes familiar and the patterns will emerge.

There is no crystal ball, as they say: it takes various tools run simultaneously to optimize trading performance. The ‘daily news’ doesn’t just miss important information, it’s mentally exhausting to rely on in the current marketing and political environment.

Technical analysis is completely different than supply and demand. That’s what makes it so valuable when performance matters - taking into account the technical perspective can turn a wrong forecast into the right one.