Recognizing Emotions In Market Cycles

When reflecting on what has transpired in the markets from the beginning of 2020 to the current day, we have seen the markets respond to events that may only happen once in a century. The past 14 months have continued to bring the unexpected in the grain markets — on the downside and the upside. Throughout this journey’s highs and lows, we have seen the market go through potentially the entire “Market Cycle of Emotions,” a cycle ranging from Hopelessness to Euphoria.

In the graphic below, we have depicted our version of The Market Cycle of Emotions as a visual tool to guide us through each phase, and the events that have transpired. The year 2020 starts in Phase B, with markets coming off a 2019 spring planting season that had some saying corn prices could possibly return to 2012 levels. While this certainly didn’t happen, it was a time of excitement for potential in the market. As we moved into 2020, we had moved away from the highs of the summer, and many still felt hopeful (and a little anxious) that 2020 could be a good year for prices.

The onset of Covid-19 continued to bring more anxiety and fear into the market, as the ethanol industry started shutting down and prices began to drop. This series of events pushed us into Phase C of The Market Cycle of Emotions. As Covid-19 restrictions continued to be extended, some feared a recovery of the ethanol industry wouldn’t happen for the rest of 2020. Murmurs were circulating in the market for corn to be at $2.50 by December. In the short time span of only a few months, the market had gone from Panic to Capitulation to Hopelessness.

As we moved into the tail end of the summer and into harvest, prices began to improve. Many felt the Depression that came with the prolonged period of lower prices and little upside. As we moved forward, yield was slowly lowered, and we saw record levels of demand from China with record purchases of corn and beans. Carryout was decreasing and demand charged ahead to take grain prices higher, pulling us through the Depression stage of Phase D and taking us further into Phase A, where we are today. Optimism, Excitement, and Thrill are words you could use to describe the recent emotions coming out of many regarding the prices in the grain market.

When does Phase A end and Phase B again begin? That is a question to which no one has the perfect answer. Everyone can have an outlook on what they THINK MAY HAPPEN. No one truly KNOWS WHAT WILL HAPPEN. This is why it is important to have a strategy that can prepare you for what MAY happen, even if it doesn’t fit your current outlook on the market. One thing that we do KNOW about the market is that prices are elevated to levels we haven’t seen for multiple years. There could be an opportunity here to take strategic action to lower the impact on the price you receive for your grain if prices cannot maintain their current levels. While the market may continue to move higher for a while, change will eventually happen. When it does happen, those who consistently stick to a strategy, taking into consideration that change is possible in the market, could find themselves in a more comfortable position. When you feel Excitement and Euphoria in the market, consider the potential for change and protect those prices.

This is also true on the opposite side of the market, experienced in the middle of 2020. Some may have given into the feeling of Hopelessness as corn prices dropped to $3.00, and not incorporated the potential for change in their strategy.

If there is anything the past 14 months have taught us, it’s that markets can and do change quickly. Often, this change happens much faster than your ability to change your outlook. This is why having a plan and sticking to a consistent strategy that incorporates scenarios outside of your current outlook is important. No matter what you think MAY happen, the one thing that WILL happen is change. While no one will ever have perfect timing, consider The Market Cycle of Emotions that everyone goes through. It may help you adhere to a strategy, and not abandon it to feelings of Hopelessness or Euphoria.



Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency. A customer may have relationships with all three companies. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.


Adam Betancourt

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