Mecardo Analysis - Visualising wheat percentiles
- By: "Farm Tender" News
- Cattle News
- Dec 11, 2018
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By Andrew Whitelaw | Source: CME, Matif, Mecardo.
As we fast approach the end of the year, it is worthwhile examining the current market structure as we move into 2019. In this update, I look at percentiles in relation to wheat futures markets.
Percentiles are an important tool for assisting in the decision-making process. They can provide an indication of the range in which prices have moved and how much time they have spent at varying levels. It is important to first explain what a percentile (or decile) is.
Deciles (or percentiles) provide one way of estimating what may happen in the future by looking at what has happened in the past.
A percentile is a measure of how often, historically, prices have fallen above or below a particular price level. It gives a brief snapshot of whether a market has more upside or downside and how large this may be.
For example, if a price is at its 67th percentile, this means that 67% of historical prices have been below that value and 33% of prices higher. Similarly, a 90% percentile means that 90% of the time, prices have been lower and higher just 10% of the time.
Our premium readers have access to the biggest library of percentile tables (Click to view). We typically present our percentiles as tables, however in order to provide a better visualization in this update, we have provided them in a chart form.
In Figure 1, CBOT futures are shown since the start of the decade. As we can see through 2016 and 2017, the market was in the lower end of the market, however, had recovered through 2018. At present the CBOT spot contract is at 38%, meaning that during this decade prices have been higher 62% of the time.
In Figure 2, MATIF futures are shown since the start of the decade. During 2018, there have been considerably dry conditions throughout Europe. This has led to the spot contract rising as high as 79% this season, although in recent months has fallen back to 63%.
Key points
* Percentiles give a quick snapshot of the market structure.
* Futures prices were at low levels in 2016 and 2017, however, have rebounded.
* Percentiles should never be used in isolation.
* Mecardo premium subscribers have access to the largest publicly available library of decile data.
What does this mean?
Percentiles are a fantastic tool for gaining a quick snapshot of the market. They are however not a tool which should be used in isolation.
It is important to have a view on the market to use in conjunction with percentiles. As an example, a market at 100%, is not necessarily always an indicator to sell. There may be fundamental factors which are driving a bullish view.
Nonetheless, a high percentile price is a time to start seriously examining pricing strategies.
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