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Higher prices quiet sales too
The relationship between higher prices and customers taking advantage of rallies seems to be inverse. When prices begin to rally, there is all the excitement and buzz of where prices may go and all the pricing you will do. As a market begins to move higher, you begin to make sales. As prices move upward after that, you begin to feel as though you made a mistake. As prices screech higher, you tend to sit on the sidelines, waiting for the market to show a better sign of a top. Does this sound familiar?
Waiting for more information before making a decision seems to be how most people are hard-wired. You don't want to let good prices get away, so you sell some. You want to leave your options open. Yet, for most, there's not a complete strategy aligned with the initial sales. If prices are moving higher, there is generally a reason and, when you initiate sales, you should re-own with call options.
If prices move higher, avoid viewing your initial sale as a mistake; rather embrace higher values. Yet, for many, without re-owning on the initial sale, the strategy becomes doing nothing. Unless calls are purchased to give you confidence to sell more, most people have a tendency to wait on the sidelines not wanting to double-up on a mistake. The grain markets in 2012 are a prime example. The higher the market went, the quieter our phones were, as farmers stood on the sidelines, fretting over early sales. Instead, they should have been selling more, embracing higher prices.
In the current market situation, we see the same occurring in cattle and milk. Prices have screeched higher, yet many producers we talk to are...you guessed it...waiting to see how far it can go. Now is the time to calculate your operation's gains on these rallies and implement strategy. Remain balanced by shifting risk and taking advantage of opportunities. Conduct critical conversations with your adviser and, if need be, your lender.
If human nature prevails, most will do nothing and, consequently, our phones will remain quiet. Yet, the day will come when prices cycle back to the downside. When this does happen, there will be lots of questions, like "What should we do now?" Move forward now, especially in milk and cattle, implementing strategy, creating a balance.
If you have questions or comments, or would like help implementing strategy for the year ahead, please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is registered with the CFTC as a commodity trading advisor. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.