Author: David Drozd, Co-founder, President, Senior Marketing Analyst
How do you make sense of all the news in the marketplace?
- Google for answers?
- Subscribe to a newsletter service?
- Ask your grain buyer what they think?
- Read the newspaper?
- Talk to your neighbours?
- Check out what farmers are saying on Twitter?
- Rely on a reputable grain marketing advisory firm?
When I started farming, I couldn’t make sense of all the news (noise). One article would suggest grain prices should go up, and another would be reason for the market to go down. Who was right?
After taking courses on how to market grain, I learned that on any given day there are several reasons why a market could go down, and just as many reasons for it to go up. How do you decipher all this information?
I found charting and technical analysis to be the answer. Technical analysts believe wholeheartedly that the price action brings out the news. If the market is up at the end of the day, bullish news substantiates the reason for prices being higher. If the market settles lower, the bearish news is referenced.
Therefore, the news is always bullish at the height of a rally and bearish at the bottom. This causes farmers to believe the market will continue to move higher at the top and lower at the bottom. We’ve heard of farmers selling canola for $13.00 or less during the February doldrums. We advised farmers not to sell at that time – to wait for the spring rally.
After studying technical analysis and watching the price action on charts for the past 40 years, I found charting and technical analysis to be the only way to cut through the news and identify market highs and lows.
It’s quite simple.
It’s time to sell when 1) a market rallies into resistance, 2) is technically overbought, and 3) especially if a reversal pattern appears. By following this discipline, our clients tell us we are 85% accurate in alerting them to sell at or near a market high. 15% of the time, a market may push through resistance and continue to rally. This is a good thing, as farmers can sell more grain at a higher price.
For illustrative purposes, let’s look at the July 2024 canola futures chart, which had a spring rally in 2024, before turning down.
In the accompanying chart, 1) futures rallied into resistance at $669.00, and 2) were technically overbought after rallying $55.00 per tonne in 5 days. This left the market at risk of turning down, so we made a recommendation for our clients to sell old and new crop canola on May 7, 2024, even though 3) a reversal pattern did not materialize.
Futures were at risk of turning down to alleviate the overbought conditions. From a fundamental perspective, we said, “when this rally stops, prices could drop very quickly, as supply is ample, and rain across the Canadian prairies is improving soil moisture conditions”. The cash price of old and new crop canola had improved $2.00 per bushel since the February low and was as high as $15.00 per bushel. These prices were available for a couple of weeks, which gave farmers ample opportunity to lock them in, before the market turned back down.
What would an extra $2.00 per bushel for canola do for your farm’s bottom line?
A 50 bushel per acre crop would gross an extra $100.00/acre. On 5,000 acres, that would amount to an extra $500,000.00 in gross revenue.
Clients tell us, one recommendation pays for their investment in our program.
Over 40 years experience in watching the charts has enhanced my ability to know when to pull the trigger and when not to pull the trigger. Some call it a sense, instinct or intuition.
Regardless of how we do it, we have an excellent track record that is second to none. The more I focus on the charts and the less I look at the news, the better I am in identifying market trends, market highs, and lows.
Wondering when to sell canola? If you are interested to learn more, click the link below.