I spend my days speaking with customers about grain marketing, and through these conversations I can tell when outside influences begin to impact their marketing decisions.
By outside influences I mean people who are giving their opinions on where the markets will go, often with compelling data and riveting statistics to make their predictions sound educated, reasonable and trustworthy.
Their voices come over the radio, via podcasts, through daily emails and, in pre-pandemic times, neighbors at the local coffee shop. While I’m sure all of these marketing influencers have the best intentions, they do not know what the markets will do because the markets are unpredictable.
Grain marketing is challenging. It’s the part of running a farming operation that many producers have come to greatly dislike. This is why so many look for someone who seems to know what the markets are going to do, to tell them when to sell their grain.
Unfortunately, when it comes to the markets, there are no crystal balls, tarot cards or reading of tea leaves –nothing that can predict when things will become volatile and move prices dramatically in one direction or the other.
One for the history books
The 2020-2021 crop year is going to be one for the history books. Before the crop could get planted, COVID-19 started spreading across the United States and the world. As we went into quarantine and working from home became the norm, we saw crude oil prices drop along with ethanol demand due to the lack of cars on the road. This resulted in corn prices plummeting and soybean prices followed.
Low prices were the story of the summer as all indications were that the corn belt was going to produce a bin buster of a crop. Then, starting in the early morning of August 10, a derecho swept through eastern Nebraska, Iowa, Illinois, Wisconsin, and Indiana with sustained winds of 70 mph and peak wind speeds as high as 150 mph. By the time the storm had passed, millions of acres of cropland had been wiped out by the storm as well as immense damage to commercial and private grain storage facilities.
August provided little rain to large portions of the corn belt. The lack of precipitation impacted corn and soybean yields and ultimately lead to smaller ending stocks and the markets started to rally. Poor South American weather conditions and a strong export market have continued to support higher prices.
That’s why prediction is impossible
The past year is a primary example of why price prediction is impossible. Who would have guessed we’d have a global pandemic that basically prevented people from leaving their homes? Or that Mother Nature would deliver such a 1-2 punch in August?
It truly fortifies the importance of managing risk, both downside and upside, for your operation.
Now that we’ve established that the markets are unpredictable, do you feel confident selling grain? The simple solution is to be consistent with your marketing strategy and not let personal bias or marketing influencers deviate you from your plan.
You say you got burned by following your marketing plan last summer? Perhaps you forward sold soybeans in July when it looked like we were going to have a bountiful soybean crop. If the sale was made, but not protected with a call option because you couldn’t imagine the market going higher, a producer would have sat on the sidelines while the market took off.
It’s okay to feel bearish when making the sale, but be true to your strategy and challenge the market to go higher by defending the sale with a call option.
The same advice goes for unsold grain when the market feels bullish. We never know when the market can turn lower and do so quickly, so it’s always important to have a floor under your unsold production.
As you market old crop and start on the new crop, make a strategy that relies on consistent execution, not price prediction. There is no strategy based on prediction.
Ignore your bias and understand that the market can surprise us at any time