After our last article on grain reports, some of you may still not be convinced of the small value we think they have for farmers. In honor of those folks, we decided...not to do very much work. Instead, we'll look at some charts and discuss some theory. The simple rule we think farmers should abide by regarding grain reports is NOT TO TRADE during or immediately after their release. More about why and when you should trade below.
You know what I find on the internet about people wanting to trade reports? They're saying "I wish the data was easy to look at and compare," and "which reports move the market the most?" But these are just hopeful statements for the holy grail seekers.
We could gather years worth of report data and compare each individual data point to the price action before and after each report. We could run statistics and do news related studies to determine coincidence vs. statistical significance. But at Crop-Side, we stick with the simple fact that the magnitude of change in price is related to the accuracy of the pre-report estimates. Take a look at this year's corn and bean charts. You'll notice the report days are marked so you can see for yourself.
We could gather years worth of report data and compare each individual data point to the price action before and after each report. We could run statistics and do news related studies to determine coincidence vs. statistical significance. But at Crop-Side, we stick with the simple fact that the magnitude of change in price is related to the accuracy of the pre-report estimates. Take a look at this year's corn and bean charts. You'll notice the report days are marked so you can see for yourself.
In both charts below, the June 30th report blew things out of the water, while the grain stocks reports were all over the board. But the main thing we notice is that, at least in this year's charts, price action seems to give traders another chance just days or weeks later. In every case, price came back at least half way from its report day open. Although this doesn't happen every year, this type of thing happens in trading all the time. Markets often give traders a second chance, and our founders know this well.
Corn 2015 YTD (year-to-date)
Soybeans 2015 YTD
For those of you who actually have traded or believe a common trader can trade a report, please consider the following. First, large trading firms often use the potential liquidity in reports to grab or dump huge positions that are not influenced by report results. This alone effects price in ways that pattern recognition cannot out do. Second, its bad odds to bet against all that technology and brains, especially with all the HFT's trying to out wit each other.
And for those of you who always need to have or hear the results from someone because its "important", I must share this with you. I was recently sent an article highlighting two trading mind sets. The first mindset has a NEED to watch every price move and participate because that's what you think you're supposed to do as a "dedicated" trader. The other mind set being in emotional control and trading when the market is right for them. The moral: trade YOUR setup, do what you're great at, and don't get distracted by old fashioned dogma. Leave this grain report stuff to the HFT's and let price be your main information source.
And for those of you who always need to have or hear the results from someone because its "important", I must share this with you. I was recently sent an article highlighting two trading mind sets. The first mindset has a NEED to watch every price move and participate because that's what you think you're supposed to do as a "dedicated" trader. The other mind set being in emotional control and trading when the market is right for them. The moral: trade YOUR setup, do what you're great at, and don't get distracted by old fashioned dogma. Leave this grain report stuff to the HFT's and let price be your main information source.
If you're having trouble interpreting that price information, let Crop-Side help.