TOP FARMER WEEKLY PERSPECTIVE 11/5/2021 BY BRYAN DOHERTY

Don’t be Afraid to Sell

The recent recovery in the corn and wheat prices are providing an opportunity for producers to reward rallies. The most recent low in December corn futures was $5.06-3/4 on October 13. As of this writing, December corn reached a high of $5.86; nearly 80 cents in just over two weeks. All wheat varieties (Chicago – soft red winter, Kansas City – hard red winter, and Minneapolis – hard red spring) have raced into new contract highs with December Chicago gaining near 95 cents in just under two weeks. Yet, for many, a price rally is hard to sell into because you really never know when to pull the trigger. Prices are advancing rapidly and doing nothing has worked. Still, doing nothing can be risky and extreme. What goes up usually comes down, and sometimes at a fast pace.

How can you manage this? First, keep a clear head. Understand that price movement is often predicated on many factors that may or may not make sense at the time. Fundamental factors (supply and demand) should be analyzed. Are recent market moves due to supply shocks? Or is it something else? Money flow in and out of markets is also an important element. Is big money increasing or reducing? Currently, it looks like big money is increasing. This can rapidly change. Is the move based on perception? Is the marketplace perceiving future changes to supply and demand? The recent surge in fertilizer prices and concern about supply availability is likely adding premium into price. Keeping a clear head is a challenge. Remember you wear two hats. You are a producer and a marketer.  At a minimum, sell incremental amounts into price rallies. It is possible there is a new paradigm: a higher level of volatility. When you cut through it all, most will tell you they never went broke selling rallies.

Become a student of marketing tools. As an inventory manager, you have the task to sell what you grow. The are many variables to consider when making decisions. Knowledge is power. If you have a good basis, then know how to use a basis contract. If you don’t have enough storage space, what does it look like to sell cash grain and retain ownership with paper? While the number of marketing tools can be overwhelming, take it one step at a time. At a minimum, know what cash contracts are offered by your buyers (elevators or end users). Learn and understand basic futures and options. That is, how to buy and sell futures and how to buy and sell calls and puts. Ultimately, you will need to be a seller.

Every year brings a new crop and decisions need to be made. Greed is an emotion and often leaves a lasting feeling of regret. At a minimum, rewarding rallies when they do occur is a great first step. With hindsight, the rationalization of selling a rally will outweigh the regret of selling too soon. Making small sales allows for additional sales if prices rally. After each sale, you get a chance to hit re-set, clear your mind, and decide if you should be more aggressive or patient.

Consult with a trusted advisor to share ideas. Review different scenarios of future market moves. That will bring clarity and confidence in your decisions.

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