TOP FARMER WEEKLY PERSPECTIVE 10/29/2021 BY BRYAN DOHERTY
Prior Planning Prevents Poor Performance
Marketing grains and soybeans is always a challenge. When it comes to making decisions based on information available at the time, often the market has already moved and factored these variables into prices. We believe the key to managing market movement and volatility is to pre-plan, using what we call Market Scenario PlanningSM. The idea is to prepare for all future price moves. Your decisions today prepare you for market moves in line with your expectations, and market moves in different directions. This past year was a marketing challenge for many. Those who did nothing for a long period of time were rewarded. Those who rewarded rallies last fall and winter may have felt they were left behind because the market moved much greater than most anticipated, as supply levels were continuously downgraded. Those who sold and retained ownership through paper may have benefited from the rally.
It is understandable that, when you’re making sales at what are currently good prices, it becomes a disappointment when prices continue to advance. You know the sales were good, yet you probably just can’t get away from the nagging feeling of regret. If prices tip over after your sales, you probably feel as though you did not make enough sales. It is a case of a never-ending spiral of regret over decisions. For many, this can chew on them to the point where making no decision is the easiest decision. At times, such as the fall of 2020, this may have paid good dividends. However, throughout the history of grain and soybean price movement, this strategy has often backfired. Increases in production reliability and capability at some point pressure prices. The mindset then turns to a willingness to sell rallies when prices rebound. Too often, these rallies don’t happen. From 2013 through the summer of 2020, selling early and selling often likely paid better dividends than holding inventory deep into the marketing year (late spring and early summer). Weather rallies were few and far between. When they did occur, they generally disappeared even faster.
In the year ahead, consider that price volatility could be significant, and that this fall’s pause in prices is nothing more than a resting place before the market makes a bigger move. Skyrocketing inputs and the need for big crops suggest there’s little room for crop production error in either the Southern or Northern Hemisphere. The old saying is, as weather goes, so do the markets. Meaning, of course, that weather is the most dominant factor affecting production; a factor that is always an unknown. It may be best to assume normal weather and production until proven otherwise. Being prepared for less-than-ideal weather is also part of the equation. As this Perspective is being written, one of the major concerns producers face is chasing input values higher. What if a year from now, commodity prices are much lower?
Take time now to plan for the proper mix of early sales and retained ownership, along with setting a price floor. This could pay significant dividends, both financially and perhaps, more importantly, emotionally. It is often said that poor decisions are made when emotion takes over. We can all probably relate to this, as we are only human. We can also take time to plan. Have appropriate conversations with those who can guide you in the planning process, preparing for prices to move in either direction. At this point, anyone can develop a market outlook. It may be spot-on or completely wrong. Prepare yourself for market moves in any direction.
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.
Author
Bryan Doherty