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.
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