Taming the Bulls & Bears

An Epiphany about Grain Marketing

I don’t need to correctly guess market direction to be a good crop marketer

By Betsy Jensen
Ag Commodity Instructor, Northland Community and Technical College,
betsy.jensen@northlandcollege.edu

I recently had an epiphany in my personal life.  I have finally come to the conclusion that I must love my husband for who he is, and not who I thought I could turn him into. When I was a naïve newlywed, I thought I could change him, understand his ways, and solve the mystery of why he leaves his clothes on the floor, but I can’t. I’m throwing in the towel, which by the way I happened to find lying on the bathroom floor.

The same epiphany came to me on crop marketing as well.  When I was a naïve college student, sitting in my first commodity marketing class, I thought I could solve this mystery of commodity marketing. I thought I could look at a USDA report and determine market direction.  I thought I could determine my cost of production and guarantee myself profits if I sold above it (crop disasters don’t happen in textbooks). 

It has taken me a few years, but I’ve finally decided that I have to accept the commodity markets for what they are, and stop trying to change them.   I’ll share with you some of my “Irrational Truths” about the commodity markets.

First of all, USDA reports mean nothing in the short term. A tight supply of wheat will mean higher prices, someday, but it doesn’t mean that’s going to happen today.  A bullish USDA report does not guarantee us higher prices that day, but stick with it, and hopefully those higher prices will appear over the long term. Trying to predict price movement in the short term, such as the next day or week, is a losing proposition.

I don’t need to correctly guess market direction to be a good crop marketer. To be a good crop marketer, I just need one day of high prices, not months or even weeks of high prices.  If I want to sell wheat at $5.00, it only has to hit $5.00 one time, and my sale is made. We have spike tops and rounded bottoms, so if prices rally, I need to act quickly.  That is why a marketing plan can be so essential because you don’t have time to think or second guess yourself when the market is rallying.  If you think you can predict market direction, you’re in way over your head. 

Volatility is my best friend in crop marketing.  I often see professional advisors recommending “do nothing because the market is so volatile.”  The definition of volatile is “subject to rapid or unexpected change.” Nowhere in the definition does it say anything about “prices go higher.”  The whole point of marketing your crop is to reduce your risk in a volatile market.  Choosing to stand on the sidelines and ride out a volatile market might mean losing $.50, or even $1.

Instead of trying to rationalize a volatile, irrational market (as I’ve tried to do in the past), I’m going to start taking advantage of it. When prices go too high, I’m going to sell. When prices go too low, I’m going to collect an LDP.  Instead of being afraid of volatility, I’m going to embrace it. Instead of trying to rationalize an irrational market, I’m going to look for opportunity.

I’ve wasted more time trying to figure out the why’s, what’s, and when’s of crop marketing – Why did prices go down today?  What will the USDA report indicate this week? When will the summer weather scare begin?  It’s good to know that information, but it’s naïve to believe that knowing that information gives me a marketing advantage.  If I know it, so does everyone else. 

I do have one advantage over many farmers, and many commodity traders. I believe I have the ability to remain rational when everyone around me begins screaming “Beans in the teens” and “We’re at a new plateau of wheat prices.” I know enough to look at the long term charts and say “Probably not.”  Even if it does, it won’t last for very long, and I’ll only regret my $4.00 wheat and $7.00 beans for one month, two months at the most.

The mystery of crop marketing will not be solved, at least not by me.  I’m throwing in the towel and accepting the markets for what they are, and not what I thought I could change them into.

Jensen puts her marketing strategies to work farming with husband Brian near Stephen, Minn.  Her market education activities including this column are supported in part by the Minnesota wheat checkoff, directed by the Minnesota Wheat Research and Promotion Council.