The Value of Price Orders
When price rallies come, they often arrive quickly, especially in the grain markets where changes in weather can have a big impact on crop prospects and price movement. The past couple of weeks have exemplified how quickly prices can move up and down. In early May, December corn futures were trading close to $4.90 and then rallied to near $6.30. On the way, futures accelerated from $5.50 to nearly $6.30 in a matter of five sessions. Just as quickly, they dropped to under $5.60. The speed at which the market moves and how quickly it pivots make it difficult to out-guess.
With the benefit of hindsight, if you were looking to sell corn at a higher price (say above $6.00), the market did offer it. Whether the market provided that higher price for a few sessions or for several months is immaterial when looking strictly at the prices offered. There is no doubt that it is challenging to make a marketing decision when prices are accelerating upward. Most likely there’s a reason, whether real or perceived. As a farmer, it is really challenging to sell into what may be a deteriorating crop due to adverse weather. Nonetheless, placing orders above the market with the willingness to accept the sale price (regardless of where prices go) can be valuable to your bottom line. As you know, when rallies occur, they often disappear just as quickly. Placing price orders (also known as limit orders) on the purchase of put options can also be a critical part in shifting risk.
A key component to setting price targets is preparation. Preparing for a market to make a move and then following through with action (placing orders) is key. While this sounds easy, in practice it may be challenging. If you take the time to map out areas before prices move, and then enter sale orders, there should be no second-guessing when the market reaches your desired sell points. If you know yourself and believe it is still difficult to pull the trigger (because in a rally there is every reason for prices to continue to climb), then consider purchasing call options to retain ownership. View calls as a discipline tool. Owned calls may give you the confidence to sell when targets are hit, because they also provide re-ownership that may be a benefit to you if prices continue upward. The emotional aspect of trying to decide on any given day to make a sale could be eliminated.
Marketing can be done well. Pre-planning and preparation may make all the difference in the world. Take time weekly to determine your action if prices reach a certain level. Then write out this plan and execute it with your advisor or whomever can help implement your strategy. Often in marketing, it is a few outstanding sales that can make the difference between an average year and a very good year.
Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
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.
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Bryan Doherty