Cut through the noise of the grain marketplace, analyst says.
Sometimes, less is more. In recent weeks, you probably had plenty of time to review markets, as bitterly cold temperatures kept many indoors.
There was no pressing fieldwork and, with prices trading at high levels, you were likely paying more attention to markets than usual. Corn and soybean futures are trading at their highest levels in nearly a decade. Recently, both have traded in more of a sideways pattern, squeezing into a tighter and tighter trading range. A breakout is likely to occur. Both bulls and bears have strong arguments defending their view.
Price cycles, technical indicators, weather, and a host of other price-predicting variables will be the focus of many. Ultimately, the market is going to do what it is going to do. This sounds like a quote from Yogi Berra, famous catcher for the New York Yankees, who often was noted for his somewhat odd quotes, yet with thought, they often made sense: In simple terms, prices are either going to move higher or lower.
The question that you should be asking yourself is, am I prepared when prices move? This author believes markets move on three variables: perception, momentum, and attitude. During late fall and early winter, the perception was that declining crop supplies were leading to a bullish attitude, and momentum was carrying prices upward. As the market looks ahead (now that March is here), attention will focus more on the upcoming crops. Supply-side economists suggest that high prices cure high prices through increased production. Recent USDA reports indicate more acres. Those who study demand will argue that demand will diminish at high prices. Both suggest prices will move lower. Well, what if demand strengthens, or what if supply tightens? How in the world is anyone to know? Preparation and strategy are key.
Cut through the noise of market talk and be ready for prices to move, potentially sharply, in any direction. Be strategic in your approach. In early March, all the uncertainty with producing crops is ahead of us. Basically, the market knows little to nothing about the upcoming season other than educated guesses. It does not know acres, yield, other major countries’ crop production totals, longer-term demand, and, well, you get the point. Typically, this uncertainty is priced into the market through higher value. As information unfolds with planting conditions, rainfall, or other variables, prices usually reflect this through lower value. Tight supplies suggest that, even with the perception of less-than-ideal weather, prices could sky-rocket.
If ever there was a time to learn and utilize multiple marketing tools, it is this year. The near-term trend of sideways price action is providing you the opportunity now to position yourself with smart preplanned marketing decisions. Invest in the future by controlling volatility with the appropriate marketing tools that are right for you and your operation. A simplistic, yet balanced approach is to forward sell half your crop, buy puts on the other half, and buy calls to cover forward sales. You can confidently head to the field and have effectively positioned yourself for whatever way the market moves. As with any strategy, be sure to talk to your adviser first. Learn the risks and potential rewards in your specific situation.
If you have comments, questions, or suggestions, contact Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-TOP-FARM, extension 300.
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.