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What
are conditioned seasonals and how do they work?
The
reason we call it conditioned seasonals (see example on page
5) is that we are conditioning out years that are not similar
in fundamental characteristics. It gives you something to
hang your hat on and to have an idea of how much should this
market move up this year. You don't use price patterns for
conditioned seasonals. That's more technical. In conditioned
seasonals, you look up the three or four primary fundamental
forces that will be influencing the market over the next six
months. Then you go back through your database and look for
similar fundamental conditions. In Soybeans, for example,
you may look for a tight old crop carryover, like this year,
and prospects for continued tightness in the coming year.
Then you go back and look at similar years in the past. You
might measure the tightness by, for example, taking the beginning
supply of Soybeans for the new crop year as a percentage of
the previous year's demand. So you have both a supply and
a demand factor. You always have to have a supply and demand
factor. You just can't do it on supply or you will not get
the right results. For example, knowing that supply is up
20% is not enough to make a correct judgment on the current
condition. You might go back the last twenty years and figure
those percentages. You then rank them from most tight year
to least tight year. Then you go back into your price database
and you start to ask questions. Did the harvest low occur
early in those years? When do wemake the seasonal lows in
Soybeans? You'll find that the tighter the years, the more
often the lows tended to occur as early as August, like this
year. They tend to occur early rather than later. Or you might
look for how far the price tends to move from the harvest
lows in these years. So you go back and you look for the harvest
low and the subsequent high. We use percentages rather than
price so we can normalize across different years. In other
words, we want to know what the subsequent high price was
as a percentage of the harvest low price. You calculate the
percentage gain that the market had from the harvest lows
and relate that to the degree of tightness in the fundamentals.
It's amazing how you can come up with correlations. There's
just all kinds of things you can do with conditioned seasonals.
Where
am I supposed to get the data to do conditioned seasonals
if I wanted to do this myself?
You
can get the fundamental data from the USDA. We sell a Stat
Book, that is a big book with all the stats that go all the
way back into the 1960's and some back into the 1950's. It
gives you world supply/demand, US supply/demand, foreign production
and supply/demand, and so on. It's probably 300 pages of grain
market fundamentals. We update it once a month. The library
and the CRB Yearbook are two other sources of fundamental
data.
Is
this style of analysis hard to do?
No.
Why
doesn't everybody do it?
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