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 single day.
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.