— Grain marketing has never been easy. The old adage that “if I knew where the markets were going to go, I wouldn’t be here,” plays out this time of the year.
With the last vestiges of winter challenging our resolve to embrace the cold, we know that a warm sunny beach sounds pretty nice. Wishful thinking can haunt us in the grain markets as well. With the steady decline that we have seen in the price of grain, we are tempted to fall in the trap of thinking, “woulda, coulda, shoulda.”
“I would have sold more grain at the higher prices … but ...; I could have sold more grain at the higher prices … but ...; I should have sold more grain at the higher prices (I will if they will only get back there again, I promise).”
Trying to outguess the markets is a dangerous proposition. Research shows us that over 90 percent of those who open brokerage accounts close them after experiencing net losses. If trading were so easy, these odds wouldn’t be so daunting.
Rather than beat ourselves up over marketing decisions that we have made in the past, we must analyze our position in the markets and plan for future opportunities. Knowing your cost of production is the first step in margin management. Margin can either be in the form of profits or losses. Profits add to our equity position and losses drain equity from our net worth. Obviously we are more satisfied with profit margins. The markets present opportunities to capture margins and it is our marketing decisions that determine which side of the ledger we will reside. If we have not made marketing decisions before the price decline of the last six weeks we may find ourselves in the throes of the old cycle of “Greed, Hope and Fear.”
I will never forget the time an old, grizzled trader pulled me aside one day after the markets had closed at the Kansas City Board of Trade. He stood there wearing a sweat-soaked trading jacket, hair thinning from pulling it and a gravelly voice from yelling. He looked me in the eye and said, “Son what were you doing in there?”
I paused and mumbled that it wasn’t one of my better days. He said, “You know about greed and fear in the markets … which one will cost you the most money?”
He didn’t wait for me to answer and blurted out, “Greed has cost me more money than fear ever has … don’t ever forget that young man!” Smarting from his comments, I knew that I had been given a gift.
As we now find ourselves in the “hope” part of the cycle, it is all the more important that we ready ourselves for any type of pre-planting rally that may occur. Many times the markets will give us a second and even a third chance to capture profits.
The key to putting them on the bottom line is to know where we are from a margin position. We have to be ready to reward the market by selling when it offers us the profits that make our financial plans work. That is a grain angle that keeps us in business and makes that day on a sunny beach in February all the more possible.
Grain Angles is written by Tom Neher, AgStar Financial Services vice president of agribusiness and grain specialist from Rochester, Minn.
