Well, as usual, we all made it through the spring challenges and work. Hay continues to grow, with some hay in the pit or in the stack and more on the way. And everyone is preparing for grain harvest. The spring moisture was good for the grain crop in most areas as topsoil, as well as subsoil moisture, was replenished.
The futures markets were volatile this spring as the large spec traders moved the markets both higher and lower. I am often asked if there are ways to take advantage of the movement in the market when these large traders move the market, and the answer is, yes. First of all, we need to take just a few minutes to analyze the reason or reasons behind the movement in the markets.
Is it Russia or Brazil, Australia or Kansas, or a combination of all these fundamental factors? Or maybe we hit support or resistance in the technical side of the market? Usually, we are able to look and see that it is a combination. For example, did the futures hit a level of support about the same time things tightened in the Black Sea? Did the market bump up against a level of resistance and Kansas received the much-needed rain? While we are looking at all of these factors that can move the market, let’s not forget to simply look at historical trends in the futures and basis as well.
Technical indicators are not an exact science, but when you study them, you are able to get a very good idea of market movement. When looking at the markets as it pertains to your marketing plan, you should be flexible on your timeline.
Let’s look at an example. You might say I always contract my grain in April. It has for the most part worked very well for me. That is good, and I don’t want to argue on the benefits of sticking with your plan. However, when you now add a technical study into the equation, your plan just could be tweaked slightly.
Let’s say the study you have chosen is showing overbought on the 20th of March. Odds are that the market will in the near future begin trending lower. Can you adjust your plan? The answer is yes, and you will feel good about your decision. The same thing will hold true if we are in the first week of April and your study is now showing the market to be oversold, and we could very well begin to see support and have the market trend higher.
The real challenge in marketing is that you just can’t outguess the market. And the rule we all need to remember is that the market is always right. We may not think so, and we feel that it’s not right, but it is. Now that I have some of you confused on technical studies, let’s switch gears and talk about your local supply/demand. This, at times, is very complicated, and just like futures, there will be times when it doesn’t make much sense.
However, once we understand just what your local basis is, your eyes will be opened and your local market will begin to make perfect sense to you. When the local market needs grain, the basis will strengthen, then once the market has bought in the nearby needs, the basis will once again weaken.
So, when we see cash bids in your area begin to move higher, there will be some questions you should ask yourself. Is the strength in the market coming from the futures market? If so, is it a technical move, historical trend or a knee-jerk reaction to some news in the world? Then the next question should be: Is it from a higher move in the basis? The odds are that it won’t be just one answer but a combination of many, but if the strength is from a move in the basis, you probably should get serious about contracting at least some of your commodity. If you don’t, I can promise you that someone will, and once the market has bought what they need near term, the basis will weaken and the opportunity will be gone.
Every commodity you grow should be a cash crop from which you are trying to be profitable. Take a little time and study the market in a way that maybe you haven’t done in the past. It will pay dividends to your operation in years to come.
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