Price Analysis
Preface
About the Author
Contact
1
Grain and Oilseed Markets
1.1
Corn
1.1.1
Recent Trends in Acreage, Yields, Production, and Use
1.2
Soybeans
1.2.1
Recent Trends in Acreage, Yield, Production, and Use
1.3
Recent Trends in Acreage, Yield, Production, and Use
1.4
Wheat
1.4.1
Hard Red Winter Wheat
1.4.2
Hard Red Spring Wheat
1.4.3
Soft Red Winter Wheat
1.4.4
Protein Premiums and Wheat Spreads
1.5
Recent Trends in Acreage, Yield, Production, and Use
2
Commodity Price Analysis and Forecasting
2.0.1
Trasformation Over Space, Time, and Form
2.1
Storable and Nonstorable
2.2
Commodity Prices
2.2.1
Forecasting Commodity Prices in Business
2.2.2
Price Analysis versus Forecasting
2.3
Forecasting Basics
2.3.1
Commodity Production Cycles
2.4
Long Term Trends
2.5
Readings
2.6
Exercises
3
How to Find Information
3.1
Market Commentary
3.2
Futures Price Quotes
3.2.1
Futures Data Sources
3.2.2
Futures Symbols and Looking up Data by Contract Expiration
3.3
USDA Reports
3.3.1
USDA Reports Influential in Commodity Markets
3.3.2
USDA Data Sources
3.4
Conclusion
3.5
Readings
3.6
Exercises
4
Futures and Hedging Review
4.1
Futures Contract Review
4.1.1
Delivery
4.2
Examples: Who Hedges and How Does a Futures Contract Facilitate a Hedge?
4.2.1
Farmer
4.2.2
Flour Mill
4.2.3
Soybean Crusher
4.2.4
Importance of Having a Line of Credit in Futures Hedging
4.2.5
How Crop Revanue Insurance Has Changed Commodity Marketing and Hedging Needs
5
Introduction to Option Contracts
5.1
What is an Option Contract?
5.1.1
Call Options Vs Put Options
5.1.2
Option Contract Components
5.2
What are the Obligations of Option Sellers?
5.3
Profit and Loss Diagrams for Option Positions
5.4
Moneyness of an Option
5.5
Option Prices (Premium)
5.5.1
Intrinsic Value
5.6
Margin Requirements
5.7
Size of the Underlying
5.8
Reading Option Quotes
5.9
Closing an Option Position
5.9.1
Exercise and Assignment
5.9.2
Option Expiration
6
Advanced Option Topics
6.1
Black-Scholes Option Pricing Model
6.1.1
Assumptions
6.1.2
Notation
6.1.3
Option Pricing Formula for Futures Contracts
6.2
Put-Call Parity
6.3
Implied Volatility
6.4
Option Prices Compared to the Profit Diagram
6.5
Option Greeks
6.6
Criticisms of the Black-Scholes Pricing Model
6.7
Delta Hedging
6.8
Example 1: Delta Hedge Your Overnight Exposure
6.9
Example 2: Delta Hedge Your Weekend Exposure
6.9.1
Why is delta-hedging not fool-proof?
7
Option Spread Strategies
7.1
Bull Call Spread
7.2
Bull Put Spread
7.3
Bear Call Spread
7.4
Bear Put Spread
7.5
Straddle
7.6
Strangle
7.7
Iron Condor Spread
7.8
Butterfly Spread
8
Hedging with Options
8.1
Hedging a Speculative Outright Futures Position
8.2
Farmer Hedging Price Risk on Production with a Put Option
8.3
Farmer Hedging by Putting on a Fence
8.4
Comparing Crop Insurance to a Put Option
9
Prices Over Space and Time
9.1
Storage Costs to the Farmer
9.2
An Increasing Forward Curve
9.3
A Decreasing Forward Curve
9.4
Forward Curve Cases with Hypothetical Data
9.5
Financial Full Carry
9.6
Calendar Spreads
9.6.1
Bullish - think prices are going up
9.6.2
Bearish - think prices are going down
9.7
Price Variation Over Space
9.8
Definition of Basis
9.9
Terminology
10
Balance Sheet Analysis
10.1
Supply and Demand
10.2
Balance Sheet
10.2.1
The Marketing Year and Balance Sheet Forecasting Schedule
10.2.2
Southern Hemisphere Production
10.2.3
Uncertainty
10.2.4
Balance Sheet Format
10.3
Coming up with a Price
10.4
Readings
10.5
Exercises
11
Price Reaction to USDA Reports
11.1
History - “The Great Data Leak of 1905”
11.2
Changing Report Release Times
11.3
Price Reactions
11.3.1
Some Examples of Recent Big Market Reactions
11.4
Conclusions
12
Forecasting Production
12.1
Estimating Acreage
12.1.1
Forecasting Harvested Acres
12.2
Forecasting Yield
12.3
Growing Season Yield Forecasts
12.4
Forecasting Production
12.5
Conclusion
12.6
Exercises
13
Forecasting Use of Corn
13.1
Food, Alcohol, and Industrial Use
13.2
Exports
13.3
Feed and Residual
13.4
Price Sensitivity of Use Categories
13.5
Forecasting Use
13.5.1
Food, Seed, and Industrial
13.5.2
Exports
13.5.3
Daily Reports
13.5.4
Feed and Residual
13.6
Readings
14
Forecasting Use of Soybeans
14.1
Soybean Crush
14.2
Exports
14.3
Feed, Seed, and Residual
14.4
Price Sensitivity of Use Categories
14.5
Forecasting Use of Soybeans
14.6
Exercises
15
Ending Stocks and Price
15.1
Forecasting Price
15.2
Examining the Data
15.3
References
15.4
Exercises
16
South American Production
16.1
Production of Corn
16.2
Production of Soybeans
16.3
South American Production Seasons and Trade Flows
16.3.1
Brazil
16.3.2
Where to find information on Brazilian Crops
16.3.3
Argentina
16.3.4
Where to find information on Argentinian Crops
17
The Soybean Crush
17.1
Oilseed Processing
17.2
Soybean Oil Uses
17.3
Soybean Meal Uses
17.4
Price Relationships
17.5
The Board Crush
17.5.1
The 1-1-1 Spread
17.5.2
The 9-11-10 Spread
17.6
Readings
17.7
References
17.8
Exercises
18
Ethanol
18.1
Ethanol Production
18.1.1
Dry Grind Ethanol Production
18.1.2
Wet Grind Ethanol Production
18.2
Distiller’s Grains
18.2.1
DDG Prices
18.3
Ethanol Prices
18.4
Ethanol and Gas Prices
18.5
Ethanol Crush Spread
18.6
Hedging the Crush Spread
18.7
Cross Hedging
18.7.1
Minimize the Variance of Cash Flow with Optimal Hedge Ratio for DDGs and Corn Futures
18.8
Exercises
18.9
Readings
19
Cattle Markets and the Livestock Crush
19.1
The Cow-Calf Operation
19.1.1
Calandar of Production for the Cow-calf Producer
19.2
The Backgrounder/Stocker
19.2.1
Bull or Heifer Calf?
19.2.2
Weight of Calves
19.3
The Large Feedlot
19.4
Beef Packing Plants
19.5
Cattle Auctions
19.6
The Cattle Crush 8-4-2
19.6.1
Details of the Spread[^cattlespread]
19.7
External Readings
19.8
Exercise
20
Hog Markets
20.1
Definitions
20.2
Gestation and Farrowing
20.3
Feeding
20.4
Waste Management
20.5
Geography of Hog Production
20.6
Industry Structure
20.7
Price Determination
20.8
Lean Hogs Futures
20.8.1
Why only one Contract Instead of Two like Feeder and Live Cattle?
20.8.2
Demise of the Frozen Pork Belly Futures Contracts
20.9
Exercises
21
Crude Oil and the Crack Spread
21.1
Light versus Heavy/Sweet versus Sour
21.1.1
Light, Sweet: WTI and Brent Crude Oil
21.2
Refining Crude Oil
21.2.1
Gasoline
21.2.2
Distillates: Diesel, Heating Oil, Jet Fuel, Kerosene
21.3
Price Trends
21.4
Fundamental Factors
21.4.1
Production of Crude, Gasoline, and Distillates
21.4.2
Inventories of Crude, Gasoline, and Distillates
21.4.3
Geopolitical Events
21.5
The Crack Spread
21.6
Exercises
22
Forecasting Production - Advanced
22.1
Exercises
23
Appendix: Forecasting with TS Models
23.1
‘Nearby’ Futures Prices
23.1.1
Trading Volume as Contract Maturity Approaches
23.1.2
When to Roll to the Next-to-Expire?
23.2
Time-Series Forecasting
23.3
Properties of Time-Series Data
23.3.1
Trends
23.3.2
Inflation
23.3.3
Seasonality
23.4
Stationarity
23.4.1
The Log-normal Price Model.
23.5
Time Series Econometrics Technical Details
23.6
Efficient Market Hypothesis
23.7
Exercises
24
Appendix: Single Market Models: ARIMA
24.1
Integrated or Not?
24.2
\(AR(p)\)
, Models
24.2.1
The
\(AR(p)\)
Model
24.3
\(MA(q)\)
, Models
24.3.1
Guesing the
\(\theta_i\)
and Minimising the Sum of Squared Residuals
24.4
Lag Length
24.5
Dealing with Seasonality
24.6
Caculating Forecast Values
Published with bookdown
© Mindy L. Mallory 2021
Price Analysis: A Fundamental Approach to the Study of Commodity Prices
Chapter 7
Option Spread Strategies
7.1
Bull Call Spread
7.2
Bull Put Spread
7.3
Bear Call Spread
7.4
Bear Put Spread
7.5
Straddle
7.6
Strangle
7.7
Iron Condor Spread
7.8
Butterfly Spread