Marketing Grain Without Emotions: Risk Management Never Grows Old

Lexion wheat Jpeg

We are entering a very important phase of our grain-marketing year.  The upcoming June 30th USDA report will once again reset the marketing playing field with a new set of numbers, a new set of grain stocks and surely a new set of emotions.  Heck, there will be so much hype leading up to the report, none of us will know where to turn.

However, many of us have been through this before.  We are used to USDA reports moving the markets but of course as farmers we are in the business of making a profit.  As I’ve said many times, we should try to market where we’re comfortable and profitable.  Needless to say, who knows what we really do.  Sometimes, emotions can get the best of us.  That goes for grain marketing decisions as well.

It reminds me of that old story I’ve used to often hear around Ontario farm country.  Back in the day, we’d get a soybean price rally with $10 always the poison pill level where we’d all hope soybeans would go.  The story goes the farmer would watch the price go up to $10 and then of course he wouldn’t sell because it’s going to $11.  The price starts to retreat, but he’s embarrassed now, not wanting to surrender.  Spring comes and it’s been a long winter.  He talks to his neighbour and tells him he’s finally sold his beans.  He waited all winter and beans are finally to $7.50, so he sold.  Everybody laughs.

I think of that story almost all the time when I write about commodity markets.  I say that because I am not immune from emotions when it comes to farming or marketing grain.  It is true that I write Market Trends for the Grain Farmers of Ontario 14 times a year, where I try to list market factors and I talk about having standing orders for grain.  However, I would be lying if I didn’t say I fell victim to my emotions through the years of grain marketing.   I used to have one rule years ago, when corn was $4 I sold.  It worked in the early days, but not so good when the ethanol moved the goalposts.  Times have changed and I certainly did too.  I’d don’t know or care if I’m in the top third of the market, but I certainly try harder than I used to and I leave emotions at home when marketing grain.

Does that mean I have a marketing plan without emotion?  I don’t think so.  However, I hope so.  Just as buying farm equipment on emotion might feel good, overhead can kill you and so can selling those soybeans for $7.50 in a year when $14 could be had off the combine last week.

I know what many of you are thinking, yeah, but I was hoping for $15 a bushel.  There we go with our emotions again.  Of course if you are reading this you are very likely a DTN subscriber and have access to all the technical and fundamental grain analysis from Darin Newsom and Todd Hultman.  They do a wonderful job of explaining markets, which makes our risk management so much more measured.  Things like futures spreads; stocks to use ratios and % of commercial carry have so much meaning if you take time to study it.  At the end of the day, I believe it helps make marketing decisions so much more measured and intelligent.

Of course in Canada risk management has a layer of Canadian dollar volatility, which is added to any future price movement.  I’ve often explained that to my American friends, who think the dollars is a dollar.  However, in a market like last fall when you had depressed corn futures prices and the crashing loonie at the same time it made grain marketing elusive.  As Canadian farmers, we had no idea that the loonie would go to $.68 on January 20th only to rebound back to $.80 on May 3rd.  I made a couple marketing decisions at the time to take advantage of the crashing loonie even though I was not happy with futures prices.  My decisions turned out to be good, at least until this latest run-up in corn futures prices.  However, I was a Monday morning quarterback most of the winter.  However, at least I had a plan to market grain efficiently and I never looked back.

Did I get emotional?  Am I still when it comes to my grain marketing in June of 2016?  Does the Canadian dollar volatility make it a bit harder, dag nabbit!  The point being regardless of the world around you, risk management never gets old and a good marketing plan can be gold.  It tends to help control those emotions and leads to better decisions.  Yes, daily marketing intelligence is key.  We’ll get to $20/bu soybeans someday, but I hope most of us sell when it hits $19.  For those of you wishing for $21/bushel, just close your eyes and wince.

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