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Fundamental Analysis

Supply and Demand

There are 4 phases in every agricultural and energy market.  As we travel through the year, these 4 phases can change their starting time, ending time, and long-term effects on the overall market as supply and demand constantly change.

For instance, we all know that the corn supply is going to be at its highest as harvest comes to an end.  When that happens, the supply is pretty much known, and demand is going to take over and drive the market.  At the same time, when the crop is planted,  the corn supply is not known as weather across the different growing areas of the US becomes the main factor and the market is now driven by supply questions.  The energy market also shows the same phases but for different reasons.

The bottom line is that historically, price levels for all commodities comes down to what the excess of supply will be.  The less excess, the higher the prices and vise-versa.  In our risk analysis, we consider expectations presented by the USDA in its monthly WASDE report along with trade comments regarding the excess supply of the commodities we cover.  That means a thorough study of the expectations of supply against the expectations of the demand in the different phases of the market.

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