Agec 447: Exam 2

Given the level of livestock inventories at the beginning of the year,

BOTH A & B A) Domestic demand for feed, such as corn or soybean meal, can be predicted fairly accurately B) Livestock and meat prices can be predicted fairly accurately based on this available level of supply, as long as demand for these commodities does not change substantially.

Technical analysis of bar charts works, because ...

BOTH A & B A) Trends and formations reflect emerging consensus of traders regarding fundamentals. B) Realization of price moves consistent with signals observed technical analysts may partly reflect a "self-fulfilling prophesy" due to market pressure from orders placed by these traders.

Which of the below are true of resistance and support planes?

BOTH A & B A-Resistance planes can be drawn when upward momentum falters and is followed by lower prices for at least a couple days. B-Support at life-of-contract lows and resistance at life-of-contract highs are typically harder to penetrate than at other price levels.

At planting, farmer Frank likes the November soybean futures price of $13.00/bu. Cash price is $12.70/bu. Frank fears falling prices. If both futures price and cash price rise to $14.00 at harvest, how much of a basis gain or loss occurs under his hedge?

BOTH A & C A-$.30 basis gain, since basis strengthened $.30 B-$.30 basis gain, since basis narrowed $.30

Which of the below are true for basis movements under short and long hedges?

BOTH A & C A-An improvement (stregthening or narrowing) in basis is a gain for a short hedger and a loss for a long hedger C-A weakening or widening in basis is a loss for a short hedger and a gain for a long hedger

Fundamental analysis and technical analysis can be complementary.

TRUE

Fundamental analysis is the use of supply and demand information or news to inform the general direction and probable range of prices.

TRUE

If futures prices are in an uptrend and volume and open interest start to decline substantially, this may reflect a "weakening" of the uptrend, as traders with long positions take profits and traders with short positions try to limit losses by offsetting t

TRUE

If there is a high volume of trade and open interest is increasing, then "new money" is coming into the market, meaning that new long and short positions are being established.

TRUE

Technical analysis helps to determine the timing of pricing actions.

TRUE

Technical analysis utilizes charting and other techniques to time pricing decisions based on historical price movements or patterns.

TRUE

Which of the below are true of moving averages?

Traders may complement other bar charting techniques with longer-term moving averages.

At planting, farmer Frank likes the November soybean futures price of $13.00/bu. Cash price is $12.70/bu. Frank fears falling prices. If both futures price and cash price fall to $12.00 at harvest, what is the net selling price under his hedge, assuming commissions of $0.02/bu?

$12.98/BU

At planting, farmer Frank likes the November soybean futures price of $13.00/bu. Cash price is $12.70/bu. Frank fears falling prices. If both futures price and cash price rise to $14.00 at harvest, what is the net selling price under his hedge, assuming commissions of $0.02/bu?

$12.98/bu

If the supply of beef in the second quarter of 2008 is 2.8% lower than in the second quarter of 2007 and the price of beef was $2.77/lb in the second quarter of 2007, estimate the price in the second quarter of 2008, assuming that demand didn't change and the own-price elasticity of beef demand is -0.67

$2.89/LB

Which of the below represent signals to sell?

A) A shorter-term moving average crossing over and dropping below a longer-term moving average. B) A closing price below an uptrend line. C) Relative strength index (RSI) values in excess of 80.

Which of the below represent signals to buy?

A) A shorter-term moving average crossing over and rising above a longer-term moving average. B) A closing price above a downtrend line. C) Relative strength index (RSI) values less than 20.

Which of the below are true regarding trend lines

A) An uptrend line is formed by drawing a line connecting two or more daily bottoms preferably10 days or more apart, while a downtrend line is formed by drawing a line connecting two or more daily tops preferably10 days or more. B) Trend lines should not be steeper than about 45° in order to avoid false signals. C) A closing price below an uptrend line is a sell signal, whereas a closing price above a downtrend line is a buy signal.

Declining demand for beef in the 1980s and 1990s

A) Reflected changing preferences of health conscious consumers. B) Reflected substitution of increasing available and lower priced chicken products. C) Was not adequately accounted for by futures markets in that period, resulting in potential arbitrage opportunities.

Which of the below are true regarding sources of fundamental information and their impacts on futures prices?

BOTH A & C A-The USDA's World Agricultural Supply & Demand Estimates and Livestock, Dairy, and Poultry Outlook are important free periodic report for crops and livestock. C-If private advisory services, which are available for a fee, accurately predict USDA report findings prior to its release, then futures price may not react much on the reports' release date.

At planting, farmer Frank likes the November soybean futures price of $13.00/bu. Cash price is $12.70/bu. Frank fears falling prices. If both futures price and cash price fall to $12.00 at harvest, how much of a basis gain or loss occurs under his hedge?

Both A & C A:$.30 basis gain, since basis stregthened $.30 C:$.30 basis gain, since basis narrowed $.30

Earl the ethanol plant manager likes the May corn futures price of $5.00/bu. Cash price is $4.85/bu. What happens under his hedge if futures price is $5.10 and cash prices is $5.00/bu in May, assuming commission of $0.02/bu on the round-turn?

Earl's net buying price is $4.92 due to a basis loss of $0.05/bu

As measured by RSI (relative strength index), markets rarely remain overbought or oversold for very long.

FALSE

Concerning in technical analysis, if an uptrend line is "broken", you must fix it

FALSE

Endings stocks as a percentage of total use should be useful in developing simple and reasonably accurate estimates of price for crops, since this statistic captures the supply leftover given what was demanded. In recent years, such estimates have been ve

FALSE

Hook reversals are more reliable signals than key reversals, because they occur on "outside days".

FALSE

Island reversals are easy to spot and manage due to the large gaps that surround them.

FALSE

Resistance and support planes are definitely the two most useful technical analysis tools to apply to bar charts.

FALSE

Technical analysis can assist conservative hedgers in avoiding interest costs on additional margin calls and other opportunity costs that selective hedgers incur.

FALSE

Technical analysis is particularly informative for long-term trading, while day traders may rely more heavily on fundamental analysis.

FALSE

Volume is the number of outstanding open contracts, whereas open interest is the number of trades on a particular day.

FALSE

Endings stocks as a percentage of total use should be useful in developing simple and reasonably accurate estimates of price for crops, since this statistic captures the supply leftover given what was demanded. In recent years, such estimates have been ve

False

Which of the following is NOT an example of a consolidation pattern?

Gaps

If the 10-day moving average is $5.08/bu and price closed the last 3 days at $5.00/bu, $5.10/bu, and $5.15/bu, respectively, is the 3-day moving average higher or lower than or exactly the same as the 10-day moving average?

Higher

Earl the ethanol plant manager likes the May corn futures price of $5.00/bu. Cash price is $4.85/bu. What kind of hedge could he use if he wants to buy corn in May (short or long)?

LONG

Millie the miller likes the July hard red winter (HRW) wheat futures price of $3.90/bu. Cash price is $3.85/bu. She fears rising prices. What kind of hedge could she use (short or long)?

LONG

Millie the miller thinks the July hard red winter (HRW) wheat futures price of $3.90/bu sounds like a good harvest-time price. The cash price is currently $3.85/bu. She fears rising prices. What happens under her hedge if futures price is $4.10 & cash prices is $4.00/bu at harvest, assuming commission of $0.02/bu on the round-turn?

Mille's net buying price is $3.82 due to a basis loss of $-0.05/BU

Hook means there is no...

OUTSIDE DAY

Fundamentally, if news sources suggest that supply is going to be shorter than previously expected while demand is going to be greater, then

Price should increase

At planting, farmer Frank likes the November soybean futures price of $13.00/bu. Cash price is $12.70/bu. Frank fears falling prices. What kind of hedge could he use to limit his selling price risk at harvest (short or long)?

SHORT

Key Reversal Defined:

traded above and below AND closed below what it did the previous day