You are here
Planting delays, Influenza A
Planting delays are finally getting their day in the sun, as grain traders are
starting to recognize the serious nature of the planting delays in the Corn Belt. These delays are affecting almost all states except MN and IA, who both
got a lot done last week as their soils were relatively drier than the rest of
the Corn Belt, having received less rain this spring. But states such as ILL,
IND, OH, and MO are really struggling with some difficult spring conditions as
is the entire Northern Plains. This may turn out to be one of the most
difficult spring planting seasons ever for many of these states, and that is
likely to lead to less yield potential in the long run.
But before planting delays finally get the nation's attention, swine flu (or the new name is Influenza A) became
the primary concern earlier this week, with a very deep break in grains due to
the outbreak over the weekend in Mexico, which spread to many other countries.
How does a trader/hedger interpret these opposing market signals? What
separates the successful trader (market whisperer) from the novice?
While Influenza A scared the daylights out of bulls/longs Monday, it is
really a human disease, spread by humans, and is not really a long term market
factor after the reaction of the first few days. However, planting delays
almost always get the attention of the market, and will have long term
implications on S/D. They are an important fundamental in determining final
yields, and therefore must get some attention if they are serious enough. Given
the nature of the two bits of news, the best way to trade them was to wait for
the full reaction of swine flu to play out, and then use it to leverage yourself
for the eventual reaction of the planting delays. Buying grains on Tuesday
night this week turned out to be the best play that could be planned by most any
trader, and is likely to bring the greatest reward.
The best time to buy? When things were the darkest for market bulls. This
spring, charts appear to be bottoming in many grains, and therefore looking for
a buying opportunity seemed the logical way to trade this animal. The swine flu
(an unexpected bearish development) was an opportune time to make a purchase on
a short term, flash in the pan type news that media touted and caused an
immediate market reaction. It was extremely hard to want to buy the market as
all the news was negative (and therefore the most difficult time to buy it
psychologically). Buying was not a euphoric decision, but a glum one at that
time. Buying when you are glum (sad about buying) and selling when you are glum
(sad about selling) is the way to make money. Why? Because if you are a bull,
you are most happy when the market has just run sharply higher.
Are you happy
about giving up your winner position at that time? NO! But selling after a
sharp run higher and everyone wants the grain is the time to sell, and then
buying it back after a correction lower (and now the bull market is no longer a
certainty in our minds). And are you happy buying after a sharp downturn
(against your market idea?) NO! Are you happy when selling after a huge run
higher? NO! You want the fun to continue longer. Trading on the money
made/lost, though is the way to trade successfully, and that means there is no
ego involved in trading. Just when you are tempted to brag to your friends
about your successful trading is when you should get out. And the day you least
want to tell someone about your trade is exactly the day you should do it!
Selling after you make the money you were after, and buying it back when the
bull market is in question (the majority are turning bearish on more media
nonsense reporting) is the way to trade successfully. And if it is against what
your ego wants to do, all the better. So in bull markets, liquidating when you
are most sure you are right (after a bull run higher), and buying when you are
least sure you are right (after a technical test of the bull market) is the way
The way this played out is a classic example of what to do, and not to do, in
trading a market successfully. Another classic example was the break last
summer from July through November. In early July, a crack emerged in the long-
term, 20 month old bull market. Technicals turned down at an extremely high
price level. With grains running higher over almost 2 years, wise traders were
looking for a break in the market to signal the end of the nearly 2 year old
bull market. Even in the 1972-1974 period, that huge bull market ended
eventually, and after commodity prices tripled or quadrupled (either extreme is
very extreme!). But how fun was it to sell just after the Great Midwestern
flooding had occurred? The media was excited about reporting how commodities
could not stop going higher, and everyone was sure prices would go higher. The
runs higher were reported with enthusiasm, but the drops with little fanfare.
No one, not even the banker, would consider selling corn at $7 or soybeans at
$15. And guess when was exactly the right time to sell it? It was extremely
hard psychologically to hold these short (and profitable) positions through the
recoveries (like the $1.25 corn rally in late August), but was extremely
profitable. Not popular trading, but profitable trading is the way to trade,
and against your own ego/comfort.
Yes, markets come and markets go, but the basics of SUCCESSFUL (not popular)
trading don't change. You must be a buyer in emerging bull markets (not mature
ones), when it isn't yet apparent to the 'crowd' mentality yet that markets are
becoming bullish. The day/moment you buy should be a day that bears think they
are in control, not bulls. And you sell when bulls think they are in control
(after a strong push higher, and reporters/media have everyone convinced the
bull is a certainty). And when we are the most sure of all that the bull market
is correct (and everyone agrees/understands it is a bull market), that is the
time to liquidate and turn bearish!
The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be reliable. The
opinions and recommendations contained are based on our judgement and do not
guarantee profits will be achieved or that losses will not be incurred.
Recommendations should not be construed as an offer to buy or sell
commodities. There is substantial risk of loss in trading futures and
options on futures.
Ray Grabanski is President of Progressive Ag, a marketing and risk
management firm for farmers located in Fargo, ND. For questions or
comments, or if you are interested in more information about Progressive Ag's
common sense marketing services, call 1-800-450-1404 or email
Planting delays are finally getting their day in the sun, as grain traders are starting to recognize the serious nature of the planting delays in the Corn Belt. These delays are affecting almost all states except MN and IA, who both got a lot done last week as their soils were relatively drier than the rest of the Corn Belt, having received less rain this spring. But states such as ILL, IND, OH, and MO are really struggling with some difficult spring conditions as is the entire Northern Plains. This may turn out to be one of the most difficult spring planting seasons ever for many of these states, and that is likely to lead to less yield potential in the long run.