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A mom's response to market stress
With the wild market swings that can occur on nearly a daily
level, it's hard to know for sure when to pull the trigger on making sales.
Volatility can be gut wrenching and can leave a person feel like they are like
a yo-yo -- up and down quickly and at times out of control. It doesn't matter
what market a producer is looking at, whether it's the milk, corn, crude oil or
stock market. Every market is a lot more volatile these days. Markets normally
taking weeks or months to move 2%-5% are now making those types of moves in a
Exactly why all markets are more volatile is a topic of
debate. The focus of this article is not on why markets are more volatile, but how
producers can navigate through this volatility.
One of the best ways to navigate through the volatility is
by focusing on building a strong overall, long-run average price. Focusing on a
solid average price leads to a marketing approach where sales and purchases are
made incrementally. In an environment where prices can swing 2%-5% daily, the
importance of an incremental approach is crucial, because the odds of being
right on the first decision or action are low.
Eyes in the back of my head
In honor of Mother's Day, let's pay homage to one of Mom's
best traits: eyes in the back of her head. She can see everything that is going
on. That isn't a trait that mere mortal marketers have.
In hindsight, we should have been selling a whole lot more
corn last summer, when price were higher. Now, producers are looking at the
prospect of a record corn crop, low prices, and wondering if prices could go
even lower yet, or turn higher depending on any summer weather scare. To price
or not to price, that is the question.
Here's the antidote to this indecision: Take a few deep
breaths. Don't beat yourself up on hindsight, because it can paralyze you when
looking forward and trying to make sound decisions today. In this market, you
need to be ready for any price scenario to unfold, which could take prices
higher or lower, and be ready with your marketing tools. At Stewart-Peterson,
we call this Market Scenario Planning(SM). When you do this, you can stand strong
and be confident of your sales and decision making.
So, as Mom always says, "Stand up straight!" No
matter how you slice it, market volatility is here to stay, and you can keep
your balance in spite of it. Price rallies should be viewed as selling
opportunities, and sell-offs should be viewed as long-term buy opportunities
for end users, or re-ownership opportunities for those early sales.
Keep in mind that there isn't one correct strategy. Selling
value and having long-term faith that farmers will produce good crops in most
years can help secure a bottom line price that is acceptable, and really helps
in years where prices make a major drop. You'll be head-and-shoulders above
farmers who didn't take early action. Your attitude will likely be upbeat and
optimistic, and that would make Mom proud.
Happy Mother's Day, Everyone! I know I am looking forward to
spending the day with my boys. I hope you enjoy your day, too.
Market Scenario Planning(sm) is a service of Stewart-Peterson
Inc. The data contained herein is believed to be drawn from
reliable sources but cannot be guaranteed. Neither the information presented,
nor any opinions expressed constitute a solicitation of the purchase or sale of
any commodity. Those individuals acting on this information are responsible for
their own actions. Commodity trading may not be suitable for all recipients of
this report. Futures trading involves risk of loss and should be carefully
considered before investing. Past performance may not be indicative of
future results. Any reproduction, republication or other use of the information
and thoughts expressed herein, without the express written permission of Stewart-Peterson
Inc., is strictly prohibited. Copyright 2012 Stewart-Peterson Inc. All rights