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Volatility: Friend or foe?

Agriculture.com Staff 06/04/2009 @ 3:44pm

Last year's volatility was an historical extreme. Many producers became so scared or uncertain that they did not make marketing decisions. Any sale you made when prices were on their way up appeared to be a mistake. When prices dropped, you did not make enough sales.

Volatility is beginning to heat up again this year. Speculative money has moved back into commodities, especially in beans, corn and wheat. This has, in part, helped to extend a price rally that began in March.

The question now: Is volatility a friend or a foe? We believe it is a friend. We have heard many producers concern themselves that the funds drive the markets too far in one direction or the other. From our perspective, volatility and a push higher in prices, regardless of who the players are, means better opportunity for you, a producer. Are $12.00 beans justified? We do not know, nor will we know for some time. On one hand, with tight inventory, $12.00 may be cheap. On the other hand, to expect sustained demand with $12.00 beans is probably unrealistic. As funds continue to pour dollars into the soybean market, producers have the opportunity to sell old crop and make new crop sales at historically high prices. Trying to outguess the market may be useless.

Other than last year, November beans, which are currently trading above $10.50, are offering farmers the highest price ever to market new crop beans. In 2003, November beans only reached a peak of $8.99 despite historically tight carryout and old crop July beans moving to $12.00. Recognize value and opportunity!

Volatility, while frustrating at times, has offered many in the agricultural community outstanding opportunities to lock in value. Be proactive when opportunity knocks. If prices begin to trade down, creating long liquidation in futures, prices may fall faster and further than one might expect. Of course, this creates frustration. Buyers or end users need to capture that opportunity. Last fall, the opportunity to capture sub $3.00 futures corn price after dropping $5.00 was an opportunity that many buyers never anticipated.

Bottom line, manage volatility through the use of all marketing tools. In this day and age, producers should be proactive and treat marketing like a profession or hire a professional to do it for them. Using tools to shift risk and/or capture opportunity is paramount and a common thread that may separate good farmers from great farmers. Being prepared for big volatility will prevent poor marketing performance. It is never as easy as it looks. It takes consistent dedication of both time and energy. But then, so does anything worth doing well. Embrace volatility and make it your friend.

If you have questions, comments or would like professional help marketing your crop, contact Bryan Doherty at Top Farmer, 1-800-TOP-FARM ext. 129.

Last year's volatility was an historical extreme. Many producers became so scared or uncertain that they did not make marketing decisions. Any sale you made when prices were on their way up appeared to be a mistake. When prices dropped, you did not make enough sales.

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