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Watch global market factors
I have traded the grain markets for 37 years. The markets have changed dramatically since 2005, and how I now trade and how I approach the grain markets have also changed dramatically. For farmers, the ways you get your marketing information and the ways you should use that information have also changed.
So what caused these significant changes in 2005? There were three major factors that happened between 2004 and 2007.
1. Wall Street firms started to view commodities as an asset class. After the Internet bubble and the drop in short-term and long-term interest rates, Wall Street companies, pension funds, and investors began looking at new ways to make money. They began taking a small part of their massive portfolios into the commodity markets. They put that money to work into commodity futures, commodity funds, commodity indexes, and commodity ETF's (exchange traded funds). This brought in new energy and a whole new dimension to the energy, grain, and livestock futures.
2. The Chicago Board of Trade (CBOT) became part of the CME Group Inc. The Chicago Mercantile Exchange (CME) went public first and eventually merged with the CBOT. This changed how grain futures were traded and how customer accounts were handled. The focus of the CME was to drive trading volume by marketing to hedge funds, indexes, and Wall Street firms. Trading volume in the grain markets exploded.
3. The futures trade moved from the pit to electronic trading. This was part of the drive by the CME Group to make the markets more transparent, more liquid, and to expand the trading hours. Again the CME efforts really worked. Trading volume in the grain markets soared, and during a weather market in 2008, you could almost trade around the clock.
What I watch for
For the first 30 years of trading, I watched the U.S. global supply/demand reports, studied weather, and tried to anticipate fundamental changes. I still stay aware of them. But now when I write my morning email updates, I focus on the following points in the order they are listed.
● Global stock markets. I watch what the global stock markets are doing in China, Japan, Europe, and the U.S.
● Crude oil. The price of crude tends to pull corn prices higher or lower.
● U.S. dollar index. When the U.S. dollar is trending lower, commodities move higher and vice versa.
● Gold. When investors are buying gold, they are usually buying the rest of the commodity markets as well.
● Weather. If weather is significant, I may put in a few weather and supply/demand comments. What used to be my first factor is now my last – if I even write about it at all.
A look at what I used to provide
What I offer to my customers has really changed over the years as well. Here's a list of some of the services I used to provide.
● Weekly newsletters. For the first 30 years, I sent a weekly newsletter (delivered by regular mail). Mailed on Friday, most of my customers received it by Monday or Tuesday.
● Closing market comments. I put a recorded phone message on an 800 number every afternoon by 3 p.m. with the closing markets and my comments.
● Seminars. I estimate that I conducted 80 live seminars a year for 30 years. Most of the 2,400 or 2,500 seminars were between Illinois and Nebraska and from Minnesota to Iowa. I spoke to 2,000 to 3,000 farmers each year.
What I provide now
The most popular products today are the ones that I started providing in the last five years. Here are the top three.
● Email updates: My early morning email update, written between 5 a.m. and 5:30 a.m., is sent out by 6 a.m. and is in email boxes by 6:20 a.m. five days a week.
● Text messages. I text grain market quotes five times a day, and I also text action alerts when it's time to make a sale or to buy inputs. Now that most farmers have cell phones, the recommendations are available immediately.
● Webinars. I provide at least two web-inars per month to 200 to 300 locations across the U.S., Canada, and Brazil. These Web-based seminars are a very efficient way to communicate with my customers, and they don't even have to leave their farm office to participate.
What should farmers do differently in this new marketing era? I have three suggestions.
1. Stay informed. I believe most farmers make the best decisions early in the day. Check the markets, read some early morning advice, and then head out to the field or shop.
2. Use all of the marketing tools that are available. Thirty years ago you had two choices: sell cash or forward contract. Now you can use hedges, hedge-to-arrive contracts, and options. By using all of the tools, you greatly increase the odds you will make the right decision.
3. Call your offers in. Having a resting offer in place above the market where you will make the sale is likely to get your crop sold at night, on the open of trade, or at a time when you are out in the field. Work with a grain broker you can trust and place your orders.