Reading a grain market without a trading desk

You don't need a Bloomberg terminal to understand why a crop is worth what it is this week. A handful of forces do most of the work.

Commodity prices look chaotic from outside and reasonably legible from inside, and the difference is mostly vocabulary. Four ideas explain most of what a headline price is doing on any given week.

The big three — plus currency

Stocks-to-use is the one to learn first

It is simply the ratio of what is in storage to what gets consumed in a year, and it explains more price behaviour than any other single number. A comfortable ratio absorbs bad news; a tight one turns a regional frost into a global rally, because there is no cushion left anywhere in the system.

Why the local price isn't the world price

What a farm actually receives is the world price minus the cost of getting grain from that farm to a buyer — freight, storage, handling and local demand. That gap, the basis, can move independently of the headline and sometimes matters more to a given farm than the exchange does.

Reading the news without over-reacting

• Ask whether a weather story affects a region that actually exports.
• Check whether a policy change is announced or in force — the market prices the second.
• Remember that a forecast revision moves prices even when nothing physical has changed.

None of this is advice — just the vocabulary to follow the story. About this project.