Taking Stock of Commodity Trading Methods
by DR. BASIL VENITIS
Fundamental Analysis is price analysis based on basic economic, political, and ecological factors.
These factors include supply and demand, seasonal cycles, weather, government policy, and so forth.
Fundamental Analysis is different from Technical Analysis, which is based on psychological factors such
as open interest, trade volume, price chart formations, commitments of large commercial houses, trends,
and the like.
In Fundamental Analysis, the present price of a commodity can be expressed as a function of relatively
few variables, namely the price of the commodity at the previous stage, the present demand, the Treasury
Bill interest rate, the inflation rate, and the inventory change between the last two stages. The inventory
change is equal to the difference between supply and demand. For agricultural commodities the inventory
change is usually calculated as the new crop plus the old crop carryover, plus imports, minus domestic
utilization, minus exports. (Note: For grain the government supports prices by buying large amounts of
grain or financing grain supplies through government loans. Therefore, for grain only, we have to adjust
the previous figures of inventory change by adding the government sales for domestic use and subtracting
the amount of grain under government loan.)