Timing

Agriculture.com Staff 06/26/2006 @ 8:34am

Often we hear farmers (and for that matter, speculators) concerned themselves that the market is not moving as they anticipate it should.

One word of advice - the market does not move on your time schedule. The market will move on the market's time schedule. While this seems obvious, it is quite amazing how often I get phone calls from farmers who say, "I can't believe the market is not going up", or, "I can't believe prices are not moving down; we have a great looking crop." The point is the market is a conglomeration of all participants, and eventually (or at least in most cases) moves toward an equilibrium price that is determined by supply and demand.

However, it is the timing that bothers people. This past winter, while visiting producers in North Texas, natural gas prices were at their peak. Each producer we talked to could not understand or believe how corn prices were not moving higher to reflect the cost to irrigate and fertilize the 2006 crop. Most irrigation wells are run on natural gas. We encouraged them to recognize that in early winter, the market may not concern itself yet with a crop that may or may not need to be irrigated. If natural gas prices were to stay high and irrigation become too expensive, the market will eventually reflect this concern through higher prices.

In other words, farmers were convinced that corn prices needed to move up but were frustrated that they were not moving up. In early winter, it might look silly for corn prices to rally(factoring in high natural gas prices) when, in fact, by spring or summer, the picture may have totally changed. Now fast-forward to spring/early summer. Natural gas prices peaked in December and made a massive decline of more than 50%. Suddenly, it is not as expensive to irrigate. Future fertilizer prices are likely headed lower.

This is just one example of how, over time, the idea may be right, but timing can be wrong. Probably a more relevant example is when dry weather engulfs the Midwest in late spring or summer. We hear farmers say there is no way that they can produce a good crop. Most likely, the farmer is of the mindset that, if dry weather continues, then his crop is in trouble. In the meantime, the frustration mounts because prices are not reflecting the problems with their crop. However, the market, in time, will catch up to their concern if crop conditions worsen. Over the last decade, adverse weather scares, while real, have yet to cause any significant shortfall of production, as was evident again last year.

In the end, what we are talking about is outlook. Outlooks change, and the market moves as such. Timing is critical, but even more important is having a strategy. If your outlook and timing is correct, you still need a plan to implement. What if your outlook is wrong? You still need a plan. Bottomline, be prepared for anything. Strategy, over time, will most likely outperform your outlook.

If you have any questions, contact Top Farmer at 1-800-TOP-FARM, ext. 129.

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