Grain markets have been in a wide trading range for some time now. Many of us are waiting for the seemingly inevitable break to one-direction or another.
How do your biases impact your thoughts on this potential break? It is important we are aware of any biases we have and respect their impact on the marketing decisions we are willing -- or not willing-- to make. Biases naturally develop based on what we read, listen to, the crop conditions in our own backyard, and the marketing decisions we have already made. They often led us to ‘hear what we want to hear’ and ‘see what we want to see’.
Well, guess what? The market does not ‘have to do’ anything, so it’s important to be careful what information we consume or reject too quickly. Many factors dictate ‘why’ prices are at current levels, and these factors change every day.
Unpredictable market changes
It was not long ago we were in what appeared to be a burdensome supply situation for ag commodities. Estimates for ending corn stocks were nearly 3 billion bushels and a million plus for soybean ending stocks. It was difficult to argue with the numbers.
That picture has changed dramatically in a relatively short period of time.
The combination of strong demand combined with a few production issues and some outside ‘fuel for the fire’ have led to a much tighter situation, for now. If you are a believer that the stocks-to-use situation can tighten up and change as quickly as it has over the past year, you cannot ignore the possibility of it easing just as quickly, too. Do not underestimate you, your neighbor or competing exporters’ ability to meet the demand needs of the world, if mother nature cooperates. We also should not ignore the potential for demand to shift unexpectedly, either.
Respect the possibilities
There are still many bullish points in today’s market, and the tight stocks situation amplifies any supply concerns that become a larger concern going forward. Be sure not to ignore the bearish arguments being made, as both sides have merit; respect the various scenarios that could play out going forward. Whether that is more of the same or something different, no one can predict the future. One thing that might be more predictable, is the likelihood of another curveball coming at us eventually. We just do not know what it will be, when it will happen, or how it will impact these markets.
Bottomline, rather than dig our heels into directional price biases, use marketing tools that allow you to defend equity while retaining opportunity to participate. Many are all too familiar with the feeling of being on the outside of a big rally and looking in. Instead of trying to figure out when and where this market should go, focus on executing your plan and using the right tools to help you manage both risk & opportunity.
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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.