Betsy’s Bulls and Bears

Managing Spike Tops and Rounded Bottoms

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

For several years, watching the markets was like watching paint dry. Up 2 cents, down 3, with an overall 20-cent trading range during the entire year.  The cleaning staff would stop by twice a week to dust the traders and brokers on the exchange floor, and everyone was content just to watch prices move pennies.

Ho hum.

But the past two years has changed everything. We had wheat rally $1.50 in 2002, only to give it all back during the first half of 2003, and then regain some by the end of the year again. We’re no longer concerned if wheat drops 20 cents, because it’ll probably go up 20 within the next two weeks. Toward the end of last December, wheat had a 50-cent trading range in just over 2 weeks. 

This is marketing whiplash, a roller coaster with daily highs, lows, and settle prices.

The market volatility makes me optimistic for sales opportunities. For those who pay attention to marketing, a volatile market can bring great rewards. I don’t need China to buy large amounts of wheat, or a big freeze in the winter wheat belt. I just need rumors of large purchases, or a freeze forecast because that will be enough to rally prices.  I only need wheat to trade at $5 for one day, not 3 months. One day is enough to get my order filled. 

One rule for marketing is “spike tops and rounded bottoms.”  Rallies are often short lived, while market bottoms can seem to last forever.  This is not a new phenomenon, and it does require that farmers stay on their toes. Be ready to sell on rallies or “spike tops,” and try to avoid getting stuck back in the “rounded bottom” that seems to last forever.

Almost everyone I know, including myself, sold some 2003 soybeans for less than $6, and then watched soybeans rally another $2 after the U.S. harvested a short crop.  As a market optimist, I see this as an opportunity. No, I was not smart enough to reown my soybeans at $6, and I didn’t come up with any complex option strategy to make up for what I lost on my first soybean sale.  I simply view this market volatility as a chance to sell some 2004 soybeans. I still have some not-so-fond memories of $4 cash soybeans, and I recognize that the current volatility in the soybean market could mean $8 or $4 cash soybeans next fall.

I consider myself more of a market optimist, and not a bull. My definition of a market optimist is someone who is optimistic about the opportunity to make money farming.  A market bull sees higher prices. While I always enjoy higher prices, I try not to get greedy.  It’s easier said than done, especially when the elevator board price is $1 higher than the contract on which you are delivering.  If it makes you feel better, you are not the only one who is feeling that pain, and it won’t be the last time you feel that pain.

Don’t let market volatility frustrate you, or prompt you to throw out your marketing plan.  Volatility gives you opportunities. You may not have time to think about those opportunities, but be ready with a plan.  The plan may need to be revised due to changing market conditions, but have a plan, and stick with it.   Try to find the appropriate balance between risk and reward, and most of all, enjoy the ride. I’ll take the fun of market volatility over ho-hum penny price movements any day.