Convergence of Factors Pressure Market Prices

What’s Happened…

The rapid decline in corn prices over the past two weeks was, by many accounts, not necessarily a surprise. Consider these factors: a convergence of technical and fundamental factors (including a massive buildup of managed money long contracts) and improved weather conditions in South America. The overbought conditions led to multiple chart signals that suggested a potential downdraft for prices. Price sell-offs were not confined to just the corn market. Soybeans, wheat, cattle, hogs, cotton, and milk all experienced steep losses. Announced tariffs against Canada, Mexico, and China may have been the tipping point for traders to move to the sidelines.  

Heavy liquidation of long contracts in multiple markets is usually a combination of several factors. Recent weakness in crude oil prices and falling equities values suggest consumer dollars are stretched at a time when inflation is sticky, all leading to a slowing economy.

Why this is Important…

The speed at which prices fall often surprises market participants. In a world where information is nearly instant, price volatility can erupt at a moment’s notice. Algorithm trading and machine learning are things that didn’t exist years ago and are now big factors in today’s markets. Trades are now executed in milliseconds. In the not-so-distant past, it took time for news to travel and for people to react. Not so much anymore. Decisions and price changes can occur on the next Tweet, news event, or due to something unforeseen. 

From the perspective of a farmer, preparing for rapid price changes is now the new norm. This preparation is done through awareness and communication. Awareness comes from paying attention to news and events that could impact prices.  

Predicting prices is not a science that has been perfected nor likely will ever be. Being aware and prepared is a habit that can be continuously improved upon. Communication with your advisor (or others who can help you) is important. 

What can you do about it?

The first step is to develop a timetable where you can dedicate a block of time only to marketing. What gets written down gets done. Keep a schedule and stay with it. The second step is to communicate your needs or ambitions. Communication needs to be done on a frequent and regular basis and, here too, in a written format. The third step is discipline – follow your scheduled timetable and revisit your process. Stay disciplined. There may be times when you’re motivated to do these things, however, motivation is usually temporary. Discipline and organization are long-lasting. 

Find out what works for you…

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally charged responses to market moves, which are always dynamic.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. 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. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. 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. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

Author

Bryan Doherty