TOP FARMER WEEKLY PERSPECTIVE 3/18/2022 BY BRYAN DOHERTY
Strategy is as Important as Ever
Only a year ago, many said if they could only get $5 for corn, they would be happy. Happiness is fleeting. Those sales are well less than the market is now offering, with new contract high prices in corn futures and many other commodities. No one could have anticipated all the variables that are influencing markets; consequently, bringing volatility and high emotions. As world supplies of commodities have tightened, so has the magnitude of price movements. Energy prices continue to make new highs simultaneously, as weather developments are affecting Southern Hemisphere crops. A quick 10% drop in equities (less than 3 weeks), the highest rate of inflation in 40 years, and growing input supply concerns are added to the mix. Traders are attempting to determine the equilibrium of prices (where supply meets demand). In recent weeks, energies, dairy, corn, hogs, soybeans, soybean oil, palm oil, soybean meal, and cotton have all screeched into new high prices.
As producers, you wear two hats: production and marketing. Most concentrate their efforts on the production side of their business because it is what they generally know best. Results are more empirical. You know with confidence that if you add extra fertilizer, you are likely to have extra yield. You deal with cost-cutting were necessary and work hours upon hours, trying to produce the best crop or livestock you can. Marketing is critical and necessary, though not always comfortable. For many, it’s a real challenge, as all decisions will be judged in the future. Do you store your crop? Or should you sell and re-own? These are just a couple of literally hundreds of decisions that could be made. In volatile times, those decision processes can be more difficult and, therefore, even more uncomfortable. It might even feel best to ignore the process. Still, doing nothing (while it can be a good strategy for a while) can only work for so long before it becomes a poor strategy. Incremental sales make sense, and to what end? As volatility picks up and the variables facing this year’s production unfold, the market will likely be violent. Prices could move vigorously, potentially in multiple directions.
As a marketer, your job is to take advantage of these opportunities and shift risk. Now is the time to learn and use marketing tools, implementing strategies that are disciplined and incorporate the math of making decisions. Most will tell you that decisions made on emotion are usually decisions regretted. In the months ahead, no one should be shocked if corn reaches over $8 or if it drops to $4.50. Both have serious consequences if you’re caught the wrong way. The same can be said for soybeans and other markets.
Before you get too busy and in the “spring mode,” where mind and efforts are concentrated toward fieldwork, take time in early February to focus on marketing. Plan out scenarios so you can incorporate strategies using marketing tools at the right time within risk tolerances that best suit you. Create a balanced approach so that, whichever way the market moves, you feel good about your decision-making. A well-planned process does not happen by accident. Map out the future so it makes financial sense for your operation.
If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
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.