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Avoiding the market's frustration
If someone had told you a month ago that the corn market would lose over a dollar a bushel on worries of Libya unrest and an earthquake in Japan, you might have thought they were drinking water from the wrong well! Yet, those are the kinds of things that can torpedo a market and, after eight months of up-trending prices, uncertainty in the world seemed to be enough to spell liquidation and push prices lower. Is this the beginning of the end or just a correction? No one knows, yet when prices start to sink fast and furious, it's a feeling that many farmers absolutely loathe and it is filled with regret and wishful thinking.
In a recent survey, 74% of farmers indicated that, once prices began to fall, they don't make sales. It may be human nature that, when prices begin to slide, you don't want to panic sell. What if the slide is temporary? Therefore, fear of making a mistake paralyzes action. You may however, now be more determined to sell if prices rally back. How often does that happen? Yet, once prices rally back, often the tendency is to believe that the market just made a correction and now certainly is poised to go higher. The bottom line is that uncertainty begins to mount and any decision can be viewed as stressful.
However, we want to highlight probably the worst case scenario, and that is when prices begin to plunge and you don't pull the trigger. How can you avoid this pitfall when prices are screaming lower and you are watching your net worth evaporate before your eyes?
Our bias is to encourage you to understand your marketing tools. Determine points above the market in which you are willing to make cash sales so that, as prices rally, you get enough of your inventory sold at a level where you feel comfortable. If prices move lower, you won't have to worry about making those extra selling decisions. More importantly, you're avoiding what we call pitfalls or valleys in the market. At the bottom of the valley, for those who sold ahead, you're probably thinking of ways to expand your operation, You're likely to be patient waiting for a price recovery. For those who have sold little or nothing, your mentality shifts to one of survival and often, panic. Good marketing decisions are not made on emotion. Good marketing decisions are made on preplanning. Therefore, in order to avoid pitfalls, take time and plan.
Our phones were ringing this past week when prices suddenly dropped from above $6.00 December corn to $5.50. Most farmers felt like they may have missed the top. Only time will tell. However, the conversations were generally structured around regret and wishes that, if only prices could move higher, then for sure they would be a seller the second time around. We'll see.
If you have questions or comments please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.