Emotions trump facts!
Early in my marketing career I began collecting humorous sayings about marketing. Over the years, the list grew until I started publishing a poster I call "Murphy's Laws for Commodity Traders. The poster is very popular with almost anyone who is involved in grain or livestock marketing. I have lost track of how many posters I have distributed over the years. I know that it is in the neighborhood of 30,000.
Most of the thirty sayings on the poster deal with the frustration farmers experience with the unknowns of trying to get good prices for their production. The odds of prices going in the expected direction are about seventy percent for the best trading system. For most individuals making decisions by the seat of their pants the odds are considerably less.
I find the wisdom of the sayings on the Murphy's Laws poster to be great consolation in times like these when grain prices have experienced an extended period of landmark moves. They remind me that I am not the only marketer who is frustrated by unexpected market action.
The first of the laws that comes to mind explaining the market moves in the past year is "The market is not logical, it is psychological." I knew that the demand for bio fuels would result in great prices for grain at some point. I thought it would be in the spring and summer of 2008. I thought $5 corn and $10 soybeans would be good targets. Psychology took over. The move began sooner than I expected. The ultimate prices were roughly 50% higher than I thought possible.
The second of the sayings that came to my mind is "The guy who owns the horse when it dies is the loser." This refers to the old story about two farmers who got into a bidding war trying to buy a horse that was in its last days. The when the price got to a million dollars, an well healed outsider who knew nothing about horses stepped in and bought the animal, thereby rescuing both farmers from an embarrassing fiasco. It reminds me of selling my last loads of corn on July 1 for $7.12 a bushel. I knew that day that there was no way anyone could pay over $7 for corn and hope to make money feeding or processing it. I should have loaded the boat on short corn futures and forward contracting the next three years of production.
The saying that applies now is "If you drop a dead cat far enough, it will bounce." That saying usually applies to the soybean market making the rally after harvest which to most farmers has no logical reason to go higher. It applies just as well to any sharp drop in prices that gets over done. The current corn and soybeans markets are setting up for such a move. It may have already started in wheat futures with a limit up move in some contracts yesterday. I do not know when, or if, it will come in corn and soybeans.
Years of watching the markets have taught me the wisdom of my Murphy's Laws. They have taught me to be patient. Probably most importantly, they have taught me that no matter how much I study and apply logic, the market is going to do something I do not expect more often that I like. Learning to deal with those times is a very important component of a good marketing plan.