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!