Subtle Leading Indicators For Agriculture

In re-reading the first book I’ve ever read on commodities trading, I gleaned a few points worthy of noting. These less known leading indicators (a few I’ve discovered on my own) should help guide you in trading in agriculture markets.

1) “Some traders believe the oats futures are a leading indicator of corn and wheat prices; that is, oats tend to move up or down prior to a move in the other prices.”

2) Weather: In spring in the U.S., watch planting progress (soybean, corn, spring wheat). In the summer, monitor crops development. In the autumn, track the harvest progress. In North American winer, watch planting progress and crop development of South American crops (during their summer). In the spring, watch their harvest progress. “A wet harvest can cause delays and hurt yields”. In the winter, watch the dormant winter wheat, which needs snow cover or else could die from the cold. The USDA releases its “Weather Bulletin” every Wednesday after the close.

3) Seasonality: Soybeans and corn usually post highs from May to July, a period of “weather scare” and parachute to lows at harvest from October to December. Winter wheat parachutes to lows in June and July and post its highs from January to March when supplies diminished enough just before the new crop is available.

4) It is known that higher crude oil prices will increase in the demand for energy alternative such as corn.

5) “The CBOT/CME distributes a weekly report about the quantity and change in terms of bushels of corn, wheat, soybeans, and oats.”

6) Weakness of the dollar will help drive exports.

7) Pay attention to government policy that can expand or restrict acreage in general or for a specific crop. Price support programs can reduce supply and “export enhancement” program can help drive exports.

SOURCE: Trading Commodities & Financial Futures: A Step-by-Step Guide to Mastering the Markets (3rd Ed.).George Kleinman

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