Chapter 3 Technical and fundamental analysis Flashcards
What are the two important tools used to forecast prices?
Technical analysis and fundamental analysis
Fundamental analysis
forecasts prices by studying the influences of supply and demand for a particular commodity.
What influences supply and demand for a commodity (fundamental analysis) 4
Inventories
imports and exports
government programs
weather
What helps fundamental analysts shape their opinions
Economic forces such as
Producers
consumers
supply and demand
Technical analysis
bases on commodity price patterns and trading volume. Technical analysts use charts and computer programs to identify and forecast price changes and trends.
How does demand effect price
price moves directly with demand. Higher demand = higher prices
How does supply effect price
Prices move inversely from supply. higher supply = lower prices
What are the 2 supply rules that affect price
- An increase in supply puts selling pressure on a commoditiys price
- A decrease in supply puts buying pressure on a commoditys price.
What affects the quantity of goods available for consumption (supply)? 7
- Producers expectations
- Number of producers
- Technological advances
- Resources
- Inventories
- Imports
- Exchange rates
How does technological advances affect prices
technology affects production costs and, therefore, supply. Improvements in production technology reduce production cost. In turn, decreased production costs motivate producers to supply increasted quantities, which puts downward pressure on prices.
What factors influence consumer demand for a commodity? 10
- Domestic use
- Consumer expectations
- Number of consumers
- Consumer preference
- Disposable income
- Exports
- Exchange Rates.
- Inflation and interest rates.
- Substitution
- Elasticity
What is elasticity?
Measures the effect of changing prices of a commodity on its supply and demand.
Demand Elasticity
The effect of price movement on the demand.
Elastic demand
changes significantly in response to price changes.
What often determines price elasticity
number and nature of substitute commodities.
Supply Elasticity
Elasticity of supply is affected by the number of suppliers.
When can supply be inelastic
When there are few producers and many obstacles for new suppliers to enter the market
4 examples of government influences
- The commodity credit corporation
- Acreage control programs
- Tariffs
- Commodity reports
What is the Commodity Credit Corporation (CCC?)
Operated by the U.S. Department of Agriculture to help stabilize farm prices by administering a loan program. FArmers may pledge harvested, stored, and inspected grains as collateral against a loan from the CCC.
How long are CCC Loans good for
renewable each year for up to three years
The CCC loans are nonrecourse loans, what does that mean
if the farmer defaults, the loan and interest are forgiven, but the farmer must forfeit the collateral-the crop- to the CCC.
Acreage Control Programs (ACPs)
reduce supplies of certain commodities to support price levels. The government agrees to pay farmers (in cash or in kind) not to cultivate all acreage. If supply is indeed reduced, prices move higher.
Tariffs
a tax on goods sold from businesses in one country to buyers in another.
How do import tariffs effect domestic prices
increase the cost of imported good, which makes domestically produced goods more price competitive. if tariffs are reduced or eliminated, domestic producers face tougher price competition from foreign suppliers, which will depress the prices of domestic goods.
