Posted by: usset001 | January 19, 2011

An Introduction to the Balance Sheet

In honor of the start of a new semester at the University of Minnesota, I think it might be fun to create a few educational posts on the most fundamental aspect of fundamental analysis (redundant?) – the balance sheet. The balance sheet is the commonly accepted starting point for fundamental analysis of markets.

Believers in the fundamental approach to price analysis will argue that supply and demand alone drive and determine prices. In grain markets, key market factors that affect supply and demand include production, imports, exports, domestic demand, government policies and weather. The balance offers a full accounting of supply and demand, so fundamental analysts must be experts at developing and reading a balance sheet.

Over the next week, I want to walk through the balance sheet, focusing on grains. My walk through will be divided into three parts. Part I will focus on the upper third of the balance sheet, the section dedicated to production and supply. Part II will zero in on the demand side of the equation, including export demand and domestic demand. The last part – Part III – will concentrate on ending stocks. I will look at how changes in ending stocks can tell us much of what we need to know about changes in supply and demand. While I’m on the topic, we might consider different ways to measure ending stocks.

In each part, I want to point out important reports that attempt to measure the various aspects of the balance sheet.  I also hope to spend a little time on current topics and trends concerning each aspect of supply and demand. Stay tuned.

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