Applications: The Soy Trader

Applications: Soy Trader^TM

A knowledge-based decision support system for participants in Soybean Markets.

The Information Problem

Key participants in the soybean marketplace, e.g., farmers, traders, production managers and research analysts, all face the same challenge: they must develop a sound trading strategy based on a continuous flow of increasingly complex and ever-changing information.

Some Current Approaches

There has been a reliance on non-rigorous qualitative advice provided by consultants, agricultural extension services, or merchandisers.

This advice often leads to a retrofit of the production and processing facilities with conventional micro-processors – which provide more information and require additional analysis.

Econometric methods for analyzing market conditions are employed and ultimately a trust to 'gut feeling' and hope for the best.

A New Approach

A new approach utilizes the highly rigorous knowledge-based technologies that have been used in medicine, defence and aerospace, and are now being increasingly applied to finance.

This approach provides farmers, analysts and traders with a sophisticated means of managing information and developing trading strategy.

The Research and Design Stage

Geoff Bastin, in conjunction with Acquired Intelligence, began preliminary work on the system in November 1987. Much of the basic research into the market and its mechanisms was undertaken in conjunction with the preparation of a manual for oilseed traders financed by the United Nations International Trade Center. Discussions held during field work in Europe, Brazil, Argentina, India and North America confirmed that the initiative was welcome.

During this initial phase, Acquired Intelligence Inc and Geoffrey Bastin established the applicability of the Acquire^® knowledge acquisition methodology to market analysis and identified a realistic problem to deal with: namely, fundamental analysis of the soybean market.

Fundamental Market Analysis

Fundamental analysis is used by traders who see the current price of a commodity as the result of the interaction of the potential supply of the commodity and its potential demand. The fundamental approach concentrates on value: factors such as production and consumption figures are considered together with other economic data and a conclusion is reached as to the price at which the commodity 'should' be trading against this background.

The SoyTrader^TM System

SoyTrader^TM focuses on the basic physical fundamentals of the market for soybeans. The system adopts the same broad approach as a human expert, relying on a mix of statistical data, hard news and market 'sentiment' to reach a judgment about the market price. Fundamental data includes factors affecting soybean supplies such as planting, growing and harvesting conditions in major producing countries, government intervention and inventories. Demand fundamentals include raw material requirements for processing and international trade. Unlike other analytical tools, SoyTrader also considers non-quantitative data relating to the psychology or 'sentiment' prevailing in the market.

The SoyTrader analyzes the market, basing a price forecast on a rigorous model of how the soybean market works, and how an expert analyst might interpret it. The system can be used to provide a clear and consistent forecast based on the available data; to check the user's own forecasts; and/or to try out the effect on the price forecast of changes in the fundamentals.

Applications: Soy TraderTM