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Fort Collins, CO | That is a great question and one to which we would all love the answer. It is nearly impossible to call tops in - runaway, parabolic, frothy - choose your favorite adjective, markets like these. But, it is these types of moves that drive me back to managing risk time and again. The less predictable things feel, the more I find it helpful to have a quantifiable number with which to work. Unlike direction, I think risk is quantifiable, and trading against that risk makes decisions easier - at least for me.
Since we have not yet started to manage 2021 risk for our clients significantly, we have the same problem as everyone else. Where or when to start? We like to answer that question with "when." Not "when the market gets to X." - but literally, what day(s). We believe markets are mostly random. If that is true, we cannot possibly pick the "right" day without a lot of luck. So we shoot for the February average to match spring crop insurance prices. Most of our producers have nearly finalized their planting decisions by then. After that, most plan changes should be beneficial if the producer is well-hedged and is changing for improved economics in one crop versus the other. The February average is functional. Not because it is some magical price, but because it lines up well with several different factors in our clients' real-world businesses.
In the end, many marketing plans would probably work better than trying to outguess market direction. The real trick is in the discipline. Making the prescribed trade at a specified time is hard, especially when it goes against one's gut. Being undisciplined will occasionally knock one out of the park, but it will also strike out a fair amount. The question always is, "Swing for the fences, or get on base?" Some people love action; some people want a boring win.
If you find someone who genuinely and repeatedly has the right answer to market direction and is willing to share, let me know.
Regards,
James
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Weekly Corn Market Update
