Farmers face information dilemma-Bryan Doherty
With corn prices breaking into new highs and soybeans on the verge of breaking major overhead resistance, we've talked to many producers who seem somewhat lackadaisical in their approach to marketing. They've sold some crop and appeared content to wait. Many tell us they want to know more before making a decision. The problem with trying to gather information, especially after a market has moved as high as corn and soybeans have this year, is that by the time you get enough information or feel informed to have confidence to make a decision, most likely the market move is well underway or perhaps even over. In other words, it's hard to outguess the future, and as a farmer that's exactly what you face when it comes to marketing.
Our concern is that farmers, perhaps rightly so, see the potential for prices to make a significant advance. For many it feels like any sale to date seems to have been a mistake. Therefore, why keep compounding the problem as long as the market is moving higher? Unfortunately, when markets move up, they generally move down at some later point. Often, the move is unforgiving and so quick that it catches many off guard. Opportunity in the uptrend suddenly evaporates. Markets often top when the news is most bullish. The market can be way ahead of what you believe. By the time you have enough information or are now convinced the market move higher is done, prices have moved low enough that you are now feeling they are too low and should bounce back.
So what should you do? Spend time planning. Prior planning prevents poor performance. In other words, be prepared for market movement at anytime and in any direction. Currently, for those who have been waiting, it's been a very rewarding process. Now it's time to take advantage of this year's rally. Often this is done through forward contracting and PUT purchasing on non-contracted bushels. The PUTS allow you to capture upside potential. In addition, consider call options against forward sales. This provides an unlimited potential, should prices rally upward in a weather market.
One only has to go back a few years (2008), when prices looked invincible and then collapsed. We're not forecasting that this year, however, when markets move higher, history has told you that it's probably just a matter of time before they move lower. The question is, are your ready and prepared, or waiting for more information to make a decision?
If you have questions or comments please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.