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Riding the cusp of hope and fear

07/11/2010 @ 11:00pm

There is an old adage in the marketing world that there are three emotional phases of marketing: Greed, Hope and Fear.

Greed refers to times of high commodity prices. During a period of high prices, complacency sets in, and producers might opt not to price any portion of their grain or livestock because the prevailing thought is "surely prices must remain high for an unspecified duration of time."

Well, along comes a down market, and then the producer thinks that surely she must not sell, because she hopes it will rebound higher, back to those levels from weeks prior. And finally, fear kicks in, when the market plummets lower, panic selling kicks in and the producer is left with less than stellar sales.

And so today, we stand on the cusp of Hope and Fear. Prices for many grains, livestock, and the stock market have retreated lower and hover around long-term support levels, teetering back and forth&

Much to the disappointment of many producers who still have old and new crop to price, grain and livestock prices have slid lower in recent weeks. Seasonally, this move lower makes sense. Furthermore, on the grain side, the early planted crop with a current lack of weather stress bodes well for high yields. Producers now hope for demand to improve, hope the stock market retreats and turns higher, hope that we get a weather rally, hope the funds come in and buy, hope for higher prices.

If the market turns lower and hope runs out, fear will set in...
Fear to sell because the market is going down.
Fear to sell because if I sell, surely it will turn higher tomorrow.
Fear to sell and frozen with indecision, not knowing what to do.

My perspective
Am I hoping for higher prices? Absolutely! Am I prepared for potentially lower prices? Absolutely! And you should be too. There are ways to limit risk exposure in down markets. If you think about them ahead of time, you avoid the tendency to do nothing because of indecision. In fact, you can be brave and smile in the face of lower prices, because you are empowered with the marketing tools needed to capture prices, before those prices occur.

If December corn futures close below $3.50 (which would take out the harvest lows from last fall), I could see prices potentially sliding down to $3.00 for December futures prices. Here are strategies you can use for corn to protect against lower prices:

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