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Planting corn on the Landis hill farm in Fairfield County on May 14.

Thoughts about market analyses

By Jon Scheve, Superior Feed Ingredients, LLC

Generally I think grain marketing information directed to farmers is often too broad and general to be helpful. I suspect that’s because those discussing the markets don’t want to commit too far in one direction for fear of being wrong.

That is understandable and reasonable to a point, but being too general isn’t very helpful either. To minimize general statements or broad ranges there are a few easy questions one can ask that I think provides more focused and helpful information.

 

Be more specific when using the terms “Bullish” and “Bearish”

When I hear “I’m bullish today” or ” I’m bearish right now” I don’t know what they mean because the terms are too subjective. One bullish person may think corn will rally 25 cents, while another thinks $1. Both of these thoughts are technically bullish, but they are very different estimates. Instead, a better question would be, “How bullish or bearish are you?” By being more specific, farmers can have a better perspective of potential.

 

What are the chances the market will move to a certain level

Recently an analyst said they thought corn could rally from $4 to $4.50 on the July futures. That would be music to farmer ears; however, given what we know today it might be a long shot. I wish there had been a follow up question: “What are the odds that will happen?” Sure corn could go up to $4.50 by July, or $5 by Christmas, and even $8 by next July, but there are a lot of market variables involved for $5 to happen and even more for $8. The higher the rally, the harder and less likely it becomes.

If someone told me there is a 10% chance of $4.50 corn versus a 50% chance, that’s a big difference. I find that unless someone can provide the odds and the reasons of a price point happening, their statement is of little use to me when I’m making marketing decisions.

I also find little value when someone tells me they think corn could trade between $4.20 and $4.50 without providing a timeframe. Will corn be between $4.20 and $4.50 by July 4, Labor Day or Thanksgiving? Providing price estimates without time frame doesn’t help me much in planning decisions.

Farmers’ profits can range significantly when the market moves from $4.20 to $4.50, so estimating this broad of a range doesn’t help me much. Instead, a tighter range of about 10 cents provides me with more clarity.

On the surface some may think this isn’t that big of a deal. But, it’s important when considering what the average farmer is hearing when these ranges are said. Farmers tend to hear the upside of wide ranges instead of the low side. In this example, I hear there is a chance for $4.50, so I’m more likely to disregard the $4.20 level. This may mean I’ll wait longer than I should to start selling some grain.

Despite the confidence of anyone with a market opinion, no one knows where prices are going. It’s easy to assume that maybe analysts who study the markets every day have some kind of insider secrets no one else knows, but they don’t because nobody can predict weather, the biggest driver of prices long term. The only information market analysts might have a better handle on, than the average farmer, is knowing how the market variables could affect supply and demand, and therefore price potential. However, they still don’t know how much these variables will affect prices.

Because no one knows where prices will go, many prefer to provide grain market information that is as general as possible. I understand and can appreciate that, but maybe using the above questions as a guideline could help farmers be more realistic with their chances for the market. This could potentially lead them to developing a better foundation for their grain marketing plans. I always try to be critical of grain marketing information from any source, whether it’s a farmer, broker, elevator manager or any analysts. In doing so, my grain marketing should improve.

 

Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results. He can be contacted at jon@superiorfeed.com.

 

 

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