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Outlook market decision-making

02/03/2012 @ 2:18pm

In a recent market outlook meeting, one farmer raised his hand and said "Last year I forward sold all my milk production, and then prices went higher. All the analysts were wrong." Frustration with marketing decisions is common. Let’s face it, unless you are magically inclined to sell at the top every time, you’ll have a tendency to second guess your decisions. The dairy producer was venting his decision based on the analysis of others. The lesson learned here is that basing marketing decisions on outlook can be very disappointing. Either the analysis is right, or it is not. Oh yes, then there is that little thing called timing. The analysis may be dead right, and the timing is off. 2012 holds much promise that volatility could be very high. So, what do you do? 

First, whether you are a farmer, speculator, or investor, you need to realize that trying to outguess price movement is a tricky business at best. So, even if someone’s analysis seems sound, you need to realize the variables used to create a market bias can and will change constantly. As you make your decisions, be prepared to make adjustments along the way if necessary. An analysis of a market is nothing more than a snapshot of a moving and breathing entity.

Second, create a balance. Selling everything at one time is risky. Making incremental sales and balancing these decisions with options to re-own or buying puts to establish a price floor can create flexibility and potential to capture price rallies. Creating a balance will, in the long run, reduce emotion. The problem the dairy farmer had was his mindset of all or nothing. When the results were not what he expected, his level of frustration and blame intensified. Don’t put yourself in a position to be all right or all wrong. Over the long run you only have a 50/50 chance each time you make a decision. So, even if you hit it right one year, statistically you are setting yourself up for future frustration.

Third, reevaluate and adjust. Use market scenario planning and prepare for what the markets may do. Discuss your strategies with someone who can offer critical and constructive feedback. Much too often we see farmers who do a great job marketing a portion of their expected production, yet leave too much open to the whims of the market. Work with total production estimates. Adjust your strategies as the market indicates, and be open to employing all marketing tools to help you achieve your goals.

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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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