Keep Your Pay Raise, Be Disciplined In Selling
Just like that, grain markets come to life and prices are moving upward.
Mind-sets and attitudes quickly changed, as weather in the Southern Hemisphere provided a boost for soymeal prices. Consequently, bean prices rallied much further than most expected.
In addition, corn and wheat came to life, as significant amounts of money movement occurred. Investment money (funds) went from net-short to net-long in just a matter of weeks. The overall perception is that weather is beginning to take hold in the U.S. and South America, and that “things” are suddenly different.
In the end, what sometimes looks different is still the same. By that we mean to say prices go up and prices go down. What changes is the approach and perception. The perception, suddenly, is that world supplies could be tighter and prices are now trending upward, possibly gaining momentum. Yet, producers are conflicted, as they’ve stored grain for some time while waiting for a rally. Once a rally comes, you need to have the discipline to keep your pay raise. How? Stay with the original plan. The only way to keep your pay raise is to sell while prices are favorable. Yet, if you are friendly to prices, then consider ways you can reinvest a portion of your pay raise.
Yes, fundamentals are changing; they always do. Every year is different. While recent years have been similar, in that large crops have been produced, there’s not a guarantee of a large crop this year. We give credit to better genetics, equipment, tillage practices, and most importantly, better farmers. Yet, Mother Nature has to cooperate. As world demand continues to grow, utilizing cheaply priced commodities, the need for big crops also becomes paramount. The market realizes this. Recent activity indicates that fund money went from over 230,000 contracts short corn to near 60,000 contracts long corn on the most recent Commitment of Traders report. This indicates just how quickly money can flow in response to a change in perception.
As farmers, we often may be geographically biased – many of you still see piles of corn. From a macroeconomic perspective, the world will utilize more corn than it produced this past year. In other words, the big picture is changing despite our back-window view, which suggests nothing is changing. Pay attention to the big picture.
Keep your pay raise by being disciplined and selling cash while prices are favorable. Be open to retaining ownership, by considering fixed risk call options. By selling cash, you’ve generated money flow and you’ve shifted the greater risk, which is downside price decline. By reinvesting in a fixed risk, you have the opportunity to purchase time-value and the ability to own the commodity for an extended period of time. This allows less worries over the day-to-day market gyrations or weather developments. Embrace increased volatility.
If you have questions or comments, contact Top Farmer at 1-800-TOPFARM, ext. 129. Ask for Bryan Doherty.
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.
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