Taming The Bulls & Bears

Market Information: It’s All in the Eye of the Beholder

The Christmas presents have been opened, the ornaments have been put away, but the snow and cold remain. As I put away the Christmas letters, I’m reminded of how much I love them. The weddings, the vacations, the awards, the exceptional children: I just love them. To me, it is a kind of social experiment. Why did Cousin Sally’s graduation make the letter, but not the vacation to see Great-Uncle Bob? Why does one child’s update fill half a page, but the second child gets barely a mention? How did the letter writer prioritize the events and people of the year? And what was left out completely?

The same questions can be asked daily when dealing with commodity traders. One trader’s headlining event does not even warrant a mention from another trader. Why does one trader prioritize a large soybean purchase from China (bullish) but another trader sees only large a South American soybean crop that is being harvested (bearish)? Why are there days when the bullish news gets the headlines? And why do the bearish headlines take priority the next day? There is bearish and bullish news in the markets each day, but somehow a few headlines make it to the top of the heap, and take priority.

Fortunately, I get to analyze traders’ priorities all the time. Every week I read at least five advisory services, and despite the fact that all five are watching the exact same markets, usually all five have very unique analyses of the markets. One person’s drought in South America is another person’s call for increased soybean acres in the United States. The September rains in the winter wheat belt are beneficial to planted wheat (bearish for those farmers), but also delay plantings for some farmers (bullish for those farmers). Is it bullish or bearish, or perhaps it is all in the eye of the beholder?

Your market priorities may not be the same priorities of another trader. Farmers often fall prey to the “backyard syndrome,” where we associate our backyard crop conditions to the rest of the United States. If wet weather is causing planting delays on your farm, it is easy to assume the problems are widespread. Never mind the fact that there is a weekly USDA crop progress and condition report that publically distributes the information. A farmer’s perception of having inside information is probably inflated. You may have a slight edge on a trader in Chicago, but it’s negligible. Your inside information most likely makes you biased, and causes more problems than it solves.

I do recommend farmers subscribe to more than one advisory service, or at the very least, make sure you read, watch or listen to more than one advisor. There are free ag market advisors on the TV and radio each day, and for a small fee, there are many more who will send you daily or weekly market commentary. Read the commentary and ask yourself why one advisor claims the weak U.S. dollar is going to save the wheat market, and another advisor thinks the dollar is going to rise and slow our wheat exports. The perception of what is going to happen, and what is important to the markets is as unique as each Christmas letter you receive.

If you are like me, you try to find that hidden bullish gem, and cling to it like a life preserver. You read a news brief discussing winter kill in the Ukraine, and become convinced wheat is going to rally. You get a tip from an elevator manager, that he got from his wheat buyer, that the wheat buyer got from another trader, and you change your mind and decide not to sell the wheat.

Please remember that commodity trading is a zero sum game, with a loser for each winner. If you pick the wrong priorities for the day, you will end up on the losing side. Every day there is a weather scare somewhere, a bumper crop in another corner of the world, and major export sales won and lost. There is a reason it is called “Turnaround Tuesday” and it is not because the fundamentals suddenly changed overnight. It is because the priorities and headlines flipped; same news, different day.

Create your marketing plan, look at a few charts for guidance, and be aware that your bullish priorities may not be the same priorities of the market. It’s all in the eye of the beholder. As for my last Christmas card; my kids are above average, my vacation was wonderful, we were fortunate to finish harvest, and I wish you all the best in 2010, in that order.