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Wednesday, June 22, 2016

What are deciles and how do I use them?

By Andrew Whitelaw

Mecardo each month update the decile levels for the major agricultural commodities, this makes Mecardo the largest repository of decile tables in Australia. Decile tables are a handy tool to gauge commodity performance. This article explains the what deciles are and how to use them.

Historical prices will obviously not tell you where the price will be next year or the year after.  However, they can provide an indication of the range in which prices have moved and how much time they have spent at varying levels.  

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 than a particular price, and higher just 10% of the time.

It is important to note that, while percentiles show the time spent above or below particular price levels, they are not a definitive measure of absolute price ranges.  They are just one tool in your market information toolbox, and should be considered in conjunction with the other information you use.  

How do I use this?

As an example, let’s say a producer is offered a forward price that they knew was at the 90th percentile.  The producer could infer from this that, as prices have only been higher than the forward price for 10% of the time in the past, this was not a bad price.  Conversely, if the price on offer was at the 10th percentile, the producer might be a little reluctant to take that price, on the basis that prices have been higher 90% of times in the past.  

Percentile _image


Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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