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Manage risk, don’t let it manage you

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Manage corn and soybean market uncertainty with a disciplined systems approach.

With fall harvest starting to increase across the Midwest, many are attempting to predict what the low in corn and soybean prices will be. Are the harvest lows for corn and beans are in?

As a student of the market, you know that price prediction is impossible. For example, U.S. yields are not the only variable that will influence price. In the wake of the latest data from the Farm Service Agency, some contend an additional upward adjustment in corn acreage will be seen in the Oct. 12 USDA Crop Production report.

What should be noted, however, is that even if an increase in acreage is seen, total production could still be lower if the national average yield declines. Plus, crop size among major competitors, such as Ukraine corn, is also a wild card. 

Another factor is demand. Unshipped export sales of corn are at record high levels, while sales announcements of soybeans are being seen daily from the USDA.

At this point, however, it is critical to note that a “black swan,” a rare and unpredictable event, could still occur. This could be political, economic, or even something that has not been seen before now. Last year’s black swan event, obviously, was coronavirus, the consequences of which have continued into this year, causing uncertainty for not only the market but the economy as well.

The sum of all these factors is increased uncertainty.

Manage your market position

We have highlighted before that there are tools available to turn market uncertainty into opportunity. One of the essential ingredients to successful marketing is discipline. By definition, in this context, discipline is “a rule or system of rules governing conduct or activity.”

Markets are unpredictable and can swing sharply higher or lower depending on a change in supply, demand, or any of the black swan factors that surface. 

How would exercising discipline in marketing apply in this environment? By following a system of rules for managing a position during periods of increased market uncertainty, regardless of market direction, your marketing would follow a disciplined approach.

Note there is no hint of price prediction in this process. In other words, management of a particular position is emphasized to provide flexibility and protection during periods of increased uncertainty. Eventually, the uncertainty will be over, and your risk will have been managed, instead of the market uncertainty managing you.

I believe it bears repeating that price prediction has no place in the mind of a hedger. If you are to be successful in managing risk, you must think as one defending risk and not as one creating it. Undoubtedly, this question of price direction comes up time and time again. We are creatures of habit and the unknowns of life and the market cause stress that drive us to try to “fix” the problem by our own methods. Stop trying to control the uncontrollable. Instead, be prepared and stay disciplined to defend your operation while making the most of every opportunity, including uncertainty.

Contact Advance Trading at (800) 664-2321 or go to www.advance-trading.com.

Information provided may include opinions of the author and is subject to the following disclosures:

The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

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